AUD/USD and NZD/USD Fundamental Weekly Forecast – Ready to React to Fresh U.S. Economic Data

The Australian and New Zealand Dollars posted strong gains last week against their U.S. counterpart, supported mostly by positive domestic news and a weaker U.S. Dollar.

The AUD/USD settled the week at .7454, up 0.0068 or +0.92%. The NZD/USD settled the week at .6925, up 0.0070 or +1.02%.

In Australia, the Reserve Bank’s Monetary Policy Meeting Minutes reiterated its early monetary policy statement, basically saying that concerns over inflation, housing and the labor market will encourage the central bank to hold interest rates steady over the near-term.

Late in the week, the Forex pair was driven higher by better-than-expected employment data. The unemployment rate fell from 5.9% to 5.7%. The employment change showed the economy added 37.4K jobs in April versus an estimate of 4.5K.

The New Zealand Dollar was also supported by upbeat economic data. The New Zealand government reported that quarterly retail sales rose 1.5%, beating the forecast of 1.1% and the previous 0.6% read. Core Retail Sales came in at 1.2%, higher than the 0.9% estimate.

Quarterly Producer Price Input also came in better-than-expected at 0.8%. PPI Output beat its 1.1% estimate with a 1.4% read.

Although the news was positive, it was probably not enough to persuade the Reserve Bank of New Zealand from holding interest rates steady the rest of the year.

Political turmoil and reduced expectations for numerous Fed rate hikes in 2017 drove the U.S. Dollar sharply lower against the Aussie and the Kiwi. The dollar posted sharp losses, as investors feeling increasingly nervous over the future of Donald Trump’s U.S. presidency, sought safe havens for their money.

Also helping to drive the U.S. Dollar lower has been a run of downbeat U.S. economic data in the past month. This news has helped drive U.S. Treasury yields lower, making the dollar a less-attractive investment.

The weak data combined with the political turmoil has casts doubts on the Fed’s ability to act aggressively when raising interest rates in 2017. Although the chances of a Fed rate hike in June have dropped from 95% to 74%, it looks like the current economic weakness and the news is not likely to stop the Fed from hiking its benchmark rate 25 basis points.

However, if the trend continues then investors are likely to continue to reduce expectations for further rises in Federal Reserve interest rates this year. This could help underpin the Australian and New Zealand Dollars.

Forecast

There are no major reports out of Australia this week. New Zealand is going to release its Annual Budget. U.S. investors will get the opportunity to react to the latest FOMC Meeting Minutes, Weekly Unemployment Claims, Core Durable Goods Orders and Preliminary GDP.

Traders are going to continue to react to the turbulence in Washington, especially if it drives down the U.S. Dollar. The Fed minutes are likely to shed some light on what the Fed is thinking, but we already know that it hasn’t been fazed too much by the weak economic data from the first quarter.

Traders may have a different opinion than the Fed because of the weaker-than-expected economic data since the Fed meeting in mid-April.

We could see a strong rally by the NZD/USD if buyers can overcome .6968. This will actually change the trend to up on the short-term chart. The AUD/USD will have to take out .7556 to change the main trend to up on the daily chart, but we could see an acceleration to the upside if buyers can take out .7469 and hold on to the gains.