AUD/USD and NZD/USD Fundamental Forecast – January 20, 2017

The Australian and New Zealand Dollars finished higher against the U.S. Dollar on Thursday as investors faded hawkish comments from Fed Chair Janet Yellen on Wednesday and solid employment and housing data on Thursday that supports the notion the economy is robust enough to withstand at least one interest rate hike.

The AUD/USD close at .7560, up 0.0056 or +0.74% and the NZD/USD finished at .7188, up 0.0066 or +0.93%.

Early Thursday, the Aussie firmed despite mixed labor market data. The Unemployment Rate ticked up to 5.8 percent from 5.7 percent in the prior month. Economists were looking for it to come in unchanged. This was the highest reading in a year. Traders said the figure rose because the participation rate unexpectedly rose to a four-month high of 64.7 percent.

The Employment Change showed an increase of 13,500 jobs in December versus 10,000 expected and 37,100 in November.

In U.S. economic news, better-than-expected housing and jobs data reinforced the notion that the U.S. economy is growing sufficiently to warrant an interest rate hike as soon as perhaps March.

U.S. Building Permits came in at 1.12 million units, in line with expectations. Housing Starts rose 1.23 million units, well-above the 1.19 million unit estimate and the 1.10 million unit rise reported last month.

Weekly Unemployment Claims were much lower than expected at 234K. Traders were looking for 252K. The Philly Fed Manufacturing Index was also a robust 23.6 compared to the 16.3 estimate and the 21.5 previous read.

Forecast

Both the AUD/USD and the NZD/USD could find support throughout the session on Friday due to jitters ahead of Trump’s inauguration that could lead to a weaker U.S. Dollar. Since no one is certain what he is going to talk about in his inauguration speech, traders are taking a cautious approach ahead of his speech at around 1730 GMT.

Underpinning both Forex pairs could be data that showed China’s economy expanded at a faster than expected pace in the fourth quarter of 2016. Data from China showed the world’s second-largest economy expanded 6.8 percent in the fourth quarter, compared with expectations of 6.7 percent, helped by higher government spending.

In New Zealand, it was reported that the currency rose after credit ratings agency S&P affirmed the country’s AA rating.

Trump is not expected to say much that could move the markets, however, investors should be prepared for volatility today. If he gives a speech that mentions his plans for the economy and traders read it as bullish then look for U.S. Treasury rates to rally, driving up the U.S. Dollar and stocks.

For experience, traders are going to be more focused on the first 100 days of his administration rather than the inauguration day.