AUD/USD and NZD/USD Fundamental Forecast – March 17, 2017

The Australian and New Zealand Dollars are trading higher early Friday but inside the previous day’s range. Both currencies are rebounding after profit-taking drove them lower on Thursday. The Aussie and the Kiwi are also on pace for solid weekly gains. The primary catalyst behind the rally this week was the Fed’s less-hawkish monetary policy decision earlier in the week.

Investors went into the Fed meeting looking for the central bank to announce more aggressive monetary policy tightening, but were disappointed when the Fed suggested it would raise rates gradually. This news triggered a massive short-covering rally by the AUD/USD and the NZD/USD.

Also underpinning the Aussie and the Kiwi were rising commodity prices especially gold, copper and crude oil. The strength in these markets was tied to expectations for stronger demand due to optimism about China’s economy.

Earlier in the week, the Australian employment change report came in down 6.4K, well below the estimate for a 16.3K increase. The unemployment rate jumped to 5.9%, well above the 5.7% estimate and previous rate.

In New Zealand, data showed the domestic economy grew 0.4 percent in October-December, from the previous quarter, versus a 0.7 percent forecast.

Traders are now turning their focus on the Reserve Bank of New Zealand (RBNZ)’s policy review on March 23. Traders expect the central bank to keep rates at a record low of 1.75 percent.

In the U.S. on Thursday, Building Permits came in at 1.21 million units, below the estimate and previous read. Housing starts, however, beat the estimate with 1.29 million units versus 1.26 million units.

The Philly Fed Manufacturing Index continued to show signs of strength, coming in at 32.8. Weekly unemployment claims were 241K, pretty much in line with expectations. The JOLTS Job Openings report showed a 5.63 million increase versus a 5.45 million estimate.

On Friday, investors will get the opportunity to react to a slew of economic data. The major report is the Preliminary University of Michigan Consumer Sentiment. It is expected to come in at 97.1, up slightly from the previous read. Capacity Utilization is expected to come in at 75.5% and industrial production at 0.3%.

Minor reports include the Conference Board’s Leading Index, Preliminary University of Michigan Inflation Expectations and the Labor Market Conditions Index.