AUD/USD and NZD/USD Fundamental Forecast – April 21, 2017

Both the Australian and New Zealand Dollars posted choppy, two-sided trades on Thursday and the price action carried over into Friday’s early trade.

Both markets are exhibiting sensitivity to increased demand for higher-risk assets and rising U.S. Treasury yields as well as to domestic data from Australia and New Zealand.

Supporting the AUD/USD and NZD/USD early Thursday was a sharp rise in U.S. equity markets. Early in the session, U.S. stocks rose as traders increased bets on a strong earnings reporting season. According to reports, profits at S&P 500 index companies are estimated to have risen 11.1 percent in the first quarter.

Stocks were supported late in the session after Treasury Secretary Steven Mnuchin said the administration was close to “major tax reform.” Mnuchin also said the Trump Administration will unveil a plan “very soon.”

Rising U.S. Treasury yields may have put pressure on the AUD/USD and NZD/USD. The dollar may have picked up strength after Dallas Federal Reserve President Robert Kaplan said on Thursday that two more interest rate hikes this year remains possible but that the U.S. central bank has the flexibility to wait and see how the economy unfolds.

“Three rate increases this year…is still a good baseline. If the economy develops a little more slowly, then we can do less that that if the economy is a little stronger, we can do more than that,” Kaplan said in an interview with Bloomberg TV.

Domestically, the Australian Dollar is probably still feeling pressure from the dovish minutes from the Reserve Bank of Australia. They suggested that concerns over the housing and labor markets will likely mean the central bank will maintain its neutral stance.

The New Zealand Dollar picked up strength early Thursday after the release of better-than-expected consumer inflation data. This data showed that inflation had reached the Reserve Bank of New Zealand’s target while suggesting the central bank will leave rates unchanged for perhaps two-years as it waits for inflation to stabilize at or near the 2 percent level.

Forecast

We’re expecting a mixed trade on Friday as Australian and New Zealand Dollar traders are likely to continue to be influenced by several factors. Simply stated, rising stocks are likely to be supported, but rising U.S. Treasury yields could put a cap on any gains or cause prices to retreat.

The French elections and the situation in North Korea could be negatives for the Aussie and the Kiwi if they create market volatility, or if they trigger a break in higher risk assets.