AUD/USD and NZD/USD Fundamental Analysis – Forecast for the Week of October 10, 2016

The Australian and New Zealand Dollars both posted losses last week as sentiment build for a U.S. Federal Reserve interest rate hike sooner rather than later. The AUD/USD finished the week at .7585, down 0.0071 or -0.92%. The NZD/USD closed the week at .7167, down 0.0114 or – 1.56%.

The Aussie traded higher early in the week after the Reserve Bank of Australia decided to leave interest rates unchanged at 1.50% and hinted that this was the end of the dovish interest rate cycle. The central bank seemed to be happy with economic growth and the housing market. The RBA did not express any concerns about the value of the currency as it probably expected a Fed rate hike later in the year to help pressure the currency.

Building approvals came in down 1.8%. This was well below the last read of 12.0%, but better than the minus 5.8% estimate.

Retail sales jumped higher in September by 0.4%. This was double the 0.2% estimate and a marked improvement from August’s 0.0% read.

The Trade Balance also improved, coming in at minus 2.01 billion. This was better than the previous read of minus 2.12 billion and the minus 2.32 billion estimate.

The New Zealand Dollar fell under pressure early in the week after a dismal GlobalDairy Trade figure. It came in at minus 3.0%. The last read was +1.7%. The weaker read probably solidified the chances for a November rate cut by the Reserve Bank of New Zealand.

Overall, both the Aussie and the Kiwi were under pressure due to the strengthening U.S. Dollar. It was driven higher by rising U.S. Treasury yields which made the Greenback a more attractive investment. Higher rates were supported by sharp improvements in the U.S. ISM Manufacturing PMI and the U.S. ISM Non-Manufacturing PMI.

The reaction to the U.S. Non-Farm Payrolls report was mixed with the AUD/USD closing higher and the NZD/USD lower.

FORECAST

It’s a pretty clean slate next week in Australia and New Zealand as far as the major economic reports are concerned. The RBA Financial Stability Review on Friday is probably the most important domestic event.

The key U.S. reports include the FOMC Meeting Minutes on Wednesday and Retail Sales, Producer Inflation and consumer sentiment on Friday.

Investors may hold off their reaction to last week’s Non-Farm Payrolls report until after the Fed minutes are released. Additionally, investors will get a chance to react to the latest commentary from FOMC Member Rosengren and Fed Chair Janet Yellen.

We’re likely to see a two-sided trade this week because the U.S. jobs report was inclusive. The AUD/USD will likely be influenced by investor sentiment. It could rise if U.S. Treasury yields weaken and U.S. equity markets rise. These two markets are the biggest influence on the Aussie at this time. Sellers are likely to stop the NZD/USD from rallying too far since investors are starting to price in the November rate cut.