AUD/USD and NZD/USD Fundamental Forecast – December 6, 2016

The Australian Dollar closed higher against the U.S. Dollar on Monday ahead of Tuesday’s Reserve Bank of Australia (RBA) interest rate announcement and economic outlook statement.

The AUD/USD finished the session at .7471, up 0.0021 or +0.28%. The New Zealand Dollar also posted a modest gain with the NZD/USD closing at .7141, up 0.0007 or +0.09%.

The Aussie and Kiwi benefited from a weaker Greenback. The U.S. Dollar fell after the Italian referendum “no” vote trigger a sharp recovery in the Euro and U.S. and European equity markets. Commodities also rose slightly while traders hit the safe-haven dollar hard.

Australian economic news on Monday showed the AIG Service Index up 51.1 versus the previous 50.5. Company Operating Profits rose 1.0%, far below the previous 6.5% and the 3.1% estimate. The ANZ Job Advertisements report showed a 1.7% gain, up slightly from the previous 1.0%.

In New Zealand, ANZ Commodity Prices came in up 2.7% versus the previous 0.7%.

Both markets were supported by China’s Caixin Services PMI which came in at 53.1, better than the estimate and the previous read.

In the U.S., Federal Open Market Committee Member William Dudley said he supports gradual interest hikes. He also added that more stimulus could mean the Fed would raise interest rates faster.

St. Louis Fed President James Bullard said properly designed and executed policies to boost infrastructure, modify regulations for some industries and overhaul the tax code “may have some impact…if they are directed towards improving medium-term U.S. productivity growth.”

In other news, U.S. Final Services PMI came in slightly lower than expected at 54.6. ISM Non-Manufacturing PMI beat the 55.3 estimate with a reading of 57.2.

Forecast

There are no major reports from New Zealand. Late Tuesday, however, the GDT Price Index will be released. This is usually a market mover.

On Tuesday, Australia will report its Current Account. It is expected to come in at -13.6 billion, below the previous -15.9 billion.

The RBA is widely expected to keep interest rates on hold today at its last meeting for 2016. Traders are going to react to any concerns mentioned in the central bank’s statement.

U.S. Revised Non-Farm Productivity is expected to come in at 3.2%. The Trade Balance is expected to come in higher at -41.5 billion. Revised Unit Labor Costs are expected to increase slightly by 0.4%.

The day ends with Factory Orders, which should show a 2.5% gain. The IBD/TIPP Economic Optimism report is expected to show a slight increase to 52.3.

I don’t expect much movement in the markets in response to the RBA statement unless it contains a surprise or two about concerns over the economy. Most of the direction of the AUD/USD and NZD/USD will be determined by the direction of the U.S. Dollar which appears ready to roll over to the downside.

The AUD/USD could breakout over .7497 and extend gains into .7544 to .7599. The key target for the NZD/USD is .7186 to .7237.