AUD/USD and NZD/USD Fundamental Analysis – Forecast for the Week of March 20, 2017

The Australian and New Zealand Dollar posted solid gains last week as investors reacted to the U.S. Federal Reserve’s monetary policy statement and interest rate projections. Both the Aussie and the Kiwi rose sharply higher last week after the Fed raised interest rates as expected but did not signal a faster pace of monetary tightening this year.

The AUD/USD finished the week at .7702, up 0.0163 or +2.17% and the NZD/USD ended the week at .7016, up 0.0095 or +1.37%.

The central bank raised the benchmark interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent. It also said that further rate increases would only be “gradual.” Fed officials also stuck with their outlook for two more rate hikes this year and three more in 2018.

Prior to the Fed’s decision, investors had been pricing at least four rate hikes this year. After the Fed announcement, U.S. Treasury investors had to adjust their portfolios due to the shift in sentiment. This sent Treasury yields lower, making the U.S. Dollar a less desirable investment.

Although the Australian Dollar rallied hard following a cautious Federal Reserve that signaled no pick-up in the pace of U.S. rate hikes, the rally stalled after the government reported weaker than expected local employment data. Employment fell 6,400 against a forecast of 16,000 and the unemployment rate rose to 5.9% from 5.7%.

The New Zealand economy fell short of expectations in the final three months of 2016. According to Statistics New Zealand, GDP grew by just 0.4% on a production basis, missing expectations for an increase of 0.7%. It was the weakest quarterly expansion since the June quarter of 2015. September quarterly GDP, previously reported as a gain of 1.1%, was also revised lower to show an increase of 0.8%.

Forecast

Technical factors are going to play a major role in this week’s price action. If the upside momentum continues then Australian Dollar traders are going to make a run at the February high at .7740 and the November 8, 2016 top at .7777.

The New Zealand Dollar is also likely to get a boost from the technical momentum, but the key level that has to be overcome to extend the rally is .7080.

This week’s key report out of Australia is the Reserve Bank of Australia’s monetary policy meeting minutes. The minutes are likely to confirm the RBA is comfortable with interest rates on hold. We’re also going to hear comments on lending standards. The RBA may also issue some tough talk on the house price boom, especially apartments.

The Reserve Bank of New Zealand is expected to keep its Official Cash Rate unchanged at 1.75 percent.

In the U.S., investors will get the opportunity to react to the latest data on weekly unemployment claims and core durable goods. Fed Chair Janet Yellen is also scheduled to speak on Thursday, March 23.

The price action early in the week is likely to be dictated by this week-end’s G20 decisions.