AUD/USD and NZD/USD Fundamental Forecast – February 23, 2017

The Australian and New Zealand Dollar finished higher on Wednesday after the U.S. Dollar weakened following the release of the Fed minutes from its monetary policy meeting on January 30 – February 1. The moves came as a surprise because the minutes seemed to show the Fed was open to a rate hike in March.

The AUD/USD closed at .7701, up 0.0027 or +0.35% and the NZD/USD finished at .7189, up 0.0028 or +0.39%.

Treasury yields finished mixed. The 10-year yield was around 2.42 percent and the 2-year yield traded near 1.23 percent. After the minutes were released, the dollar erased its slight gains against a basket of currencies.

The price action suggests that investors aren’t too convinced that the pace of normalization is speeding up. If this is the case then we’re going to have to put the Fed minutes behind us and pay close attention to fresh economic data and comments from Fed speakers. This will keep us current and better prepared going into the Fed’s March 15 monetary policy meeting.

In economic news, weekly mortgage applications fell 2 percent for the week-ending February 17 amid lackluster refinancing. Existing home sales rose 3.3 percent in January.

Forecasts

There seems to be a clash developing between the fundamental and technical traders. Fundamentally, both the Reserve Bank of Australia and the Reserve Bank of New Zealand have put any rate adjustments on hold which has pressured prices recently, but the Forex pair have failed to stray too far from their recent highs.

Wednesday’s somewhat hawkish Fed minutes should’ve pressured the Aussie and the Kiwi further, but they both surprisingly firmed. I don’t know when the shoe is going to drop that sends these two currencies lower, but it doesn’t look like a U.S. rate hike in March will do the trick.

The current price action suggests that greater demand for risky assets like stocks is helping to support the Australian and New Zealand Dollars. So we have to conclude that both currencies are likely to be underpinned until the U.S. stock market tops out.

Looking at the daily charts, we could see a change in trend to up on a trade through .7242. A move through .7129 will signal increasing selling pressure. Aussie traders may make a run at .7732. Overtaking that level could drive the AUD/USD into .7777. This market is far from collapsing, however, because of support at .7621 to .7595.

On Thursday, investors will get the opportunity to react to a speech by Treasury Secretary Mnuchin at 1200 GMT. U.S. data includes weekly unemployment claims, and the Home Price Index. FOMC Member Robert Kaplan is also scheduled to speak.