AUD/USD and NZD/USD Fundamental Forecast – February 27, 2017

The Australian and New Zealand Dollars finished lower on Friday as investors reacted to a rebound in the U.S. Dollar. Economic data from New Zealand was scarce last week, with investors reacting primarily to the possibility the Reserve Bank of New Zealand will leave rates lower for a prolonged period of time and a potentially bullish chart pattern.

The NZD/USD finished at .7194, down 0.0035 or -0.49%.

Australian Dollar traders had to deal with the RBA’s monetary policy minutes, and reports on construction, wages and private capital expenditures. Traders also had the opportunity to react to two speeches from RBA Governor Lowe.

The RBA minutes suggested the central bank is not likely to adjust monetary policy soon, as some have speculated. The RBA also noted that Australia’s third quarter contraction was likely a one-time event, reflecting temporary forces that are not expected to continue in the December quarter.

RBA Governor Philp Lowe essentially talked down the Australian Dollar when he expressed his concerns over Australia’s high household debt-to income ratio. He said that this would likely prevent further easing.

The AUD/USD closed at .7668, down 0.0046 or -0.60%.

In the U.S., investors priced in the possibility that interest rates would remained lower for a longer period of time than previously thought. This assessment was based on the Fed’s less-hawkish than expected minutes released last Wednesday and remarks from Treasury Secretary Steven Mnuchin, which suggested President Trump’s economic policies may be delayed until at least August.

Forecast

Early Monday, AUD/USD investors are reacting positively to a quarterly report that showed Company Operating Profits had jumped by 20.1%. Investors were looking for an increase of 8.0%.

Gains could be limited as investors prepare for the release of the latest Current Account report. Early Wednesday traders will get a chance to respond to the latest 4Q GDP data.

New Zealand Dollar investors have a chance to react to the ANZ Business Confidence and Trade Balance.

On Monday, traders will have the opportunity to react to a slew of U.S. economic data including Durable Goods. Core Durable Goods are expected to rise 0.5% and Durable Goods Orders by 1.6%.

Minor reports include Pending Home Sales, which are expected to increase by 1.1%, down from the previous 1.6%.

Dallas Fed President Robert Kaplan is also expected to speak on Monday. He is considered a hawk so he may try to build a case for a March rate hike, which could help put a lid on gold prices. Recently, Kaplan revealed that the Fed should leave its options open to a rate hike in March.

He also said that the Fed should be tactical in taking opportunities to hike. Furthermore, he said Trump’s policies should focus on sustainable growth. Finally, he said that as the year unfolds, he does not want the Fed to get behind the curve.

The direction of the AUD/USD and NZD/USD is likely to be primarily driven this week by trader reaction to Trump’s first major policy address to Congress on Tuesday. Therefore, we’re likely to see a two-sided, rangebound move on Monday as investors square positions ahead of his speech.

Trump is expected to reveal some details of his infrastructure spending and tax plans, but traders are not counting on seeing the same bullish reaction we’ve seen recently.

On Sunday, in a televised interview, Treasury Secretary Steven Mnuchin provided more details. He said that Trump will use the event to preview some elements of his sweeping plans to cut taxes for the middle class, simplify the tax system and make American companies more globally competitive with lower rates and changes to encourage U.S. manufacturing.