AUD/USD and NZD/USD Fundamental Analysis – Forecast for the Week of December 5, 2016

The Australian and New Zealand Dollars posted solid gains against the U.S. Dollar last week. The AUD/USD finished the week at .7450, up 0.0018 or +0.25%. The NZD/USD closed the week at .7134, up 0.0096 or +1.37%.

The main drivers of the price action last week were domestic economic data, crude oil prices and U.S. economic data. Stripping that all aside, investor sentiment leaned towards the Aussie and the Kiwi because of an overvalued U.S. Dollar.

Domestically, Australian investors had the chance to react to mixed economic news. Private Sector Credit rose 0.5%, AIG Manufacturing came in at 54.2, beating the 50.9 estimate. A survey of Commodity Prices surged 32.1%, up from the previous 15.3%. However, Private Capital Expenditure fell 4.0%.

The latest Reserve Bank of New Zealand (RBNZ) Financial Stability report expressed concerns about the housing and dairy sectors. Reserve Bank Governor Graeme Wheeler said in a speech he expects consumer inflation to move back within its target as soon as December, a sign that record low interest rates were beginning to have their desired effect.

Soaring crude oil prices pressured the Aussie and the Kiwi because they raised inflation concerns, leading to higher U.S. Treasury yields.

At the end of the week, the Australian and New Zealand Dollars were supported by a mixed U.S. Non-Farm Payrolls report. It showed that the economy added 178K jobs in November as expected. The Unemployment Rate fell to 4.6% from 4.9%. Average Hourly Earnings disappointed with a 0.1% decline, lower than the +0.2% estimate and the +0.4% previous read.

Forecast

This week, the Reserve Bank of Australia is expected to leave its benchmark interest rate at 1.50%. Quarterly GDP is expected to come in at +0.2%, down from the previous 0.5%.

New Zealand will release the latest GDT Price Index results. The last report came in at +4.5%. RBNZ Governor Graeme Wheeler is scheduled to give a speech early Wednesday. Traders will be looking for commentary on his outlook for interest rates.

In the U.S., investors will get the opportunity to react to the latest reports on ISM Non-Manufacturing PMI, Weekly Unemployment Claims and Preliminary University of Michigan Consumer Sentiment.

The overall direction of the AUD/USD and NZD/USD will likely be driven by the direction of U.S. Treasury yields. With the jobs report out of the way, the next major event is next week’s Federal Open Market Committee meeting and interest rate decision.

Since the market has priced in a 93% chance of a Fed rate hike in December, investors are likely to start focusing on the number of future rate hikes. Friday’s jobs report was not too encouraging for a number of future rate hikes. If this concern spills over to this week then we could see a continuation of the AUD/USD and NZD/USD rally.

The primary upside objective this week for the AUD/USD is .7544 to .7599. On the downside, we could see consolidation inside .7461 to .7386. The NZD/USD has major support at .7080. Its primary upside objective is .7186 to .7237.

Weaker Treasury yields will be supportive for the AUD/USD and NZD/USD. Higher yields could put a lid on any rallies. Sharply higher yields could trigger a resumption of the downtrend.