AUD/USD and NZD/USD Fundamental Forecast – January 24, 2017

The Australian and New Zealand Dollars showed little reaction to Trump’s decision to withdraw from the Trans-Pacific-Partnership on Monday. Perhaps it was because it was priced into the markets months ago shortly after he won the election, or perhaps investors are indifferent to the decision.

The AUD/USD closed at .7583, up 0.0031 or +0.40%. The NZD/USD finished the session at .7231, up 0.0067 or +0.93%.

Besides pulling out of the TPP deal, Trump also threatened to impose a “very major” border tax for companies who shift production out of the U.S.

Also pressuring the U.S. Dollar on Monday were comments from U.S. Treasury Secretary nominee Steven Mnuchin who told senators that he would fight currency manipulation and said an “excessively strong U.S. Dollar” could hurt the economy.

“The strength of the U.S. Dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America,” Mr. Mnuchin said in written response to a senator’s question about the implications of a hypothetical 25 percent rise in its value. “From time to time, an excessively strong dollar may have negative short-term implications on the economy.”

Last week, Trump told the Wall Street Journal that he thought the U.S. Dollar was “too strong”.

Forecast

Perhaps the real reason for the Aussie and the Kiwi’s strength on Monday and one that could continue to influence the currencies on Tuesday is the weaker U.S. Dollar. The Australian and New Zealand Dollars could continue to pick up strength over the near-term if Trump continues to demonstrate a protectionist attitude.

Monday’s price action reflects an attitude among traders that Trump is trying to weaken the U.S. Dollar on purpose in order to make U.S. goods and services more competitive. So essentially, Aussie and Kiwi traders have concluded or are close to concluding that the U.S. is heading towards a trade war.

As traders we have to expect increased volatility in the currency markets this year because it appears we are headed towards a global trade war. The volatility may come if countries decide to retaliate against the U.S. Dollar.

In other news, investors are preparing for the release of the latest quarterly Australian Consumer Inflation figures. Economists are predicting headline inflation of 0.7 percent over the quarter and core inflation of 0.5 percent.