AUD/USD and NZD/USD Fundamental Weekly Forecast – Weak U.S. Treasury Yields, Demand For Risk Providing Support

The New Zealand Dollar fell sharply against the U.S. Dollar last week after the New Zealand government cut its economic growth forecasts in a pre-election finance update. The Forex pair did mount a comeback late in the week in response to Fed Chair Janet Yellen’s somewhat dovish speech on Friday.

The NZD/USD settled at .7239, down 0.0071 or -0.97%.

The Kiwi was pressured early in the week in response to bearish commentary about the economy from finance minister Steven Joyce in the Treasury’s Pre-election Economic and Fiscal Update 2017.

“The softer growth New Zealand has experienced in the six months to March flows through to a lower starting point in the 2017/2018 year,” said Joyce.

Joyce’s forecast that the NZ economy grew by 2.6% during the year to June, down from an earlier 3.2% forecast, while growth for the year to June 2018 is expected to be 20 basis points lower than earlier projections, at 3.5%.

The news left traders weighing the possible implications the government’s projections may have for interest rate policy at the Reserve Bank of New Zealand. Translation:  Investors are worried the economy is not strong enough to warrant a near-term interest rate hike by the RBNZ.

AUD/USD

There were no major reports from Australia last week. Most of the price action was related to position-squaring ahead of the Jackson Hole symposium. The Aussie picked up strength at times when the spread between Australian Government Bonds and U.S. Government Bonds widened. Also influencing the price action was risk sentiment, or demand for higher-yielding assets.

The AUD/USD finished the week at .7931, up 0.0004 or +0.06%.

U.S. Dollar

In other news, the U.S. Dollar traded in several directions throughout the week. Providing support for the U.S. Dollar was increased speculation Republicans and Trump were getting closer to announcing their tax reform plan.

The Greenback was pressured early in the week after U.S. President Donald Trump suggested a shutdown of the government was possible and threatened to terminate the North American Free Trade Agreement. Late in the week, the U.S. Dollar fell after Fed Chair Janet Yellen delivered what traders considered to be a dovish speech at the central bankers’ conference at Jackson Hole.

Forecast

The biggest influence this week on the direction of the AUD/USD and the NZD/USD should be U.S. Treasury yields and investor sentiment. Look for the Australian and New Zealand Dollars to firm if Treasury yields continue to weaken. Increased demand for higher risk assets should also drive prices higher.

Limiting gains could be the announcement of Trump’s long-awaited tax reform plan. President Trump’s chief economic advisor Gary Cohn said the President will start publicly campaigning for highly-anticipated tax reform next week. Cohn told the Financial Times that Trump will begin calling for long-awaited reform next Wednesday when he visits Missouri.

In other news, investors will get the opportunity to react to the latest U.S Preliminary GDP report. It is expected to show an increase of 2.7%, up slightly from the previous 2.6%.

On Friday, the U.S. will deliver its latest report on Non-Farm Payrolls. The headline number is expected to show the economy added 180K jobs. The Unemployment Rate is expected to come in at 4.3% and Average Hourly Earnings are expected to rise 0.2%, a little below the previous 0.3%.