AUD/USD and NZD/USD Fundamental Forecast – January 13, 2017

The Australian and New Zealand Dollars posted strong gains on Thursday in a move not driven by their strength but rather the U.S. Dollar weakness. The catalyst behind the weakness was another decline in U.S. bond yields.

The AUD/USD closed at .7484, up 0.0043 or +0.58% and the NZD/USD ended the session at .7102, up 0.0048 or +0.68%.

The rally by the Aussie and the Kiwi was a continuation of the move started on Wednesday after President-elect Donald Trump failed to talk specifics about his economic policies relating to his fiscal stimulus plans.

In U.S. economic news, Weekly Unemployment Claims came in at 247K, better than the 266K forecast.

Forecast

Over the short-run, the AUD/USD and NZD/USD are expected to continue to be supported by uncertainty over Trump’s ability to run a government or follow-through on his economic promises.

The rally is likely to last until traders start to talk about the Fed and potential rate hikes. Trump may also get the benefit of the doubt once he is inaugurated on January 20.

The Fed meets on January 27, but investors don’t believe it is going to raise rates, but it is likely to lay out the groundwork for a rate hike in March. The rally may continue into the Fed meeting, but I expect it to run out of steam at or near that time as the upside will be limited by Fed tightening expectations.

Prior to the Fed meeting, the Reserve Bank of New Zealand meets on January 26 and the Reserve Bank of Australia on February 2.

In the U.S. on Friday, investors will get the opportunity to react to the latest data on Retail Sales and Producer Prices.

Core Retail Sales and Retail Sales are expected to come in at 0.5%. Both are higher than their previous reads.

Producer inflation is expected to show a 0.1% increase, lower than the previous 0.4% read.