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AUD/USD and NZD/USD Fundamental Forecast – February 22, 2017

By:
James Hyerczyk
Updated: Feb 22, 2017, 05:07 UTC

A stronger U.S. Dollar helped drive the Australian and New Zealand Dollars lower on Tuesday. The dollar was mostly supported by hawkish talk from a pair

Australian Dollar

A stronger U.S. Dollar helped drive the Australian and New Zealand Dollars lower on Tuesday. The dollar was mostly supported by hawkish talk from a pair of Fed officials who supported a rate hike. However, there was also some dovish talk.

Hawkish commentary from Cleveland Fed President Loretta Mester on Monday carried over into Tuesday’s session. Later in the day, the Greenback received another push higher after Philadelphia Fed President Patrick Harker said a March rise was on the table.

San Francisco Fed President John Williams sounded dovish when he warned about persistently low interest rates. Singing a similar dovish tune was Minneapolis Fed President Neel Kashkari who said the U.S. labor market has “more room to run”, suggesting he does not believe the central bank should raise rates quickly to head off inflation.

U.S. economic data showed the U.S. Purchasing Managers Index (PMI) was at 53.9 in February, down from 55.6 in January and expectations for 55.8.

The AUD/USD closed at .7674, down 0.0013 or -0.17% and the NZD/USD finished at .7161, down 0.0026 or -0.36%.

AUDUSD
Daily AUD/USD

The Aussie was also pressured following the release of minutes from February’s RBA monetary policy meeting. The minutes highlighted weaker than expected growth. They also showed the central bank was concerned over the appreciating currency which was seen as complicating economic adjustment away from mining.

The RBA also noted that inflation growth met expectations for the December quarter and forecasts were little changed. Medium-term inflation expectations remained “well anchored” as the committee anticipates a gradual rise in prices.

The RBA also looked at domestic growth trends and felt that it would be appropriate to hold rates lower for longer to further support growth.

NZDUSD
Daily NZD/USD

Forecast

Fresh economic data from Australia showed no major surprises. The MI Leading Index came in at 0.0%. Construction Work Done was down 0.2%, versus a 0.5% estimate. The Wage Price Index came in as expected at 0.5%.

RBA Governor Philip Lowe said early Wednesday the risks of encouraging more borrowing by already heavily indebted households argued against seeking a faster return to its target band, another sign rate cuts were off the table.

Lowe also said a high and rising unemployment rate might add to the case for more stimulus, but so far the bank was satisfied that the labor market was heading in the right direction.

In the U.S. on Wednesday, Australian and New Zealand Dollar investors will get the opportunity to react to the latest data on Existing Home Sales. This report is expected to show a 5.55 million unit gain. FOMC Member Powell is also expected to give a speech.

The highlight of the day will be the release of the Fed minutes from its February Monetary Policy meeting. The minutes of the January 31 – February 1 meeting could signal if another interest rate hike is imminent.

We’re expecting to see volatility after the minutes because investors are going to take the information in the minutes and piece it together with last week’s testimony before Congress by Fed Chair Janet Yellen to draw a conclusion on the chances of a Fed rate hike in March. Currently, fed fund futures are giving just 17% odds of a rate increase in March and 47% in June.

Hawkish minutes could pressure the AUD/USD and NZD/USD further since their recent strength seems to have been deflated by their respective central banks.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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