AUD/USD and NZD/USD Fundamental Forecast – March 16, 2017

The Australian and New Zealand Dollars are trading lower early Thursday after rallying nearly two-percent on Wednesday following the release of a less-hawkish Federal Reserve monetary policy statement than expected.

The AUD/USD is trading lower due to weaker than expected February jobs figures. The NZD/USD is under pressure in reaction to a lower-than-expected quarterly GDP report.

The Aussie and the Kiwi surged despite a 25 basis point Fed rate hike. The move by the Fed took its benchmark rate to a target range between 0.75 to 1 percent on evidence of stronger jobs growth and rising inflation. This move by the Fed was widely expected by investors.

Going into this week’s two-day Fed meeting there had been fears that the central bank was going to move faster in raising rates with some investors pricing in the strong possibility of four rate hikes. Those concerns were eased, however, after Fed Chair Janet Yellen said any future tightening would be more gradual.

Additionally, there was not much change in economic forecasts from the Fed’s December meeting either, with unemployment, inflation and federal funds median forecasts unchanged from December 2016.

The price action by the AUD/USD and NZD/USD indicates that investors saw the Fed’s monetary policy statement as fairly neutral, with the only “hawkish” aspect – apart from the hike itself – being slightly more officials seeing three or more hikes in 2017, versus two.

The AUD/USD gave back some of its gains after the release of a disappointing jobs report. In February, Australia ended up losing 6,400 positions against an expectation that the nation would gain 16,000. This was also the first time the nation experienced a net contraction in jobs since September 2016.

The NZD/USD lost ground early Thursday after the government reported that New Zealand’s economy grew less than economists forecast last quarter and at the slowest pace since mid-2015. This added to signs that this year’s expansion may not be as robust as the central bank expected.

New Zealand GDP gained 0.4% from the previous quarter, when it rose a downward revised 0.8%. Economists forecast a 0.7% gain. Additionally, the economy expanded 2.7% from a year earlier, lower than the 3.2% estimate.

Thursday’s price action suggests the AUD/USD and NZD/USD may become rangebound over the near-term. The Forex pairs should sit in a range until there is evidence the Fed will raise rates again in June. Yesterday’s price action suggests that the rally may have been fueled by short-covering and position-squaring by investors who were looking for a hawkish tone from the Fed.