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AUD/USD and NZD/USD Fundamental Forecast – March 23, 2017

By:
James Hyerczyk
Updated: Mar 23, 2017, 09:56 UTC

The Australian and New Zealand Dollars are under pressure shortly ahead of the U.S. trading session. The unwinding of the carry trade is the primary

AUDUSD

The Australian and New Zealand Dollars are under pressure shortly ahead of the U.S. trading session. The unwinding of the carry trade is the primary driver of the early selling pressure.

Investors are dumping higher-yielding assets as they wait to see whether U.S. President Donald Trump and the House Republicans can push through a healthcare bill. A failure to do so could signal problems to come with Trump’s other key economic proposals including tax reform, relaxed regulations and increased infrastructure spending.

At 929, the AUD/USD is trading .7634, down 0.0042 or -0.55% and the NZD/USD is at .7041, down 0.0016 or 0.02%.

AUDUSD
Daily AUD/USD

Although there are other key reports and several Fed speakers later today, the financial markets’ immediate focus is on whether Trump can gather enough support at a vote later in the day to rollback Obamacare, one of his key campaign pledges.

Investors who pumped up higher risk assets since Trump’s election are expressing concerns that if the White House fails to overcome the healthcare roadblock, progress on fiscal stimulus and tax cuts might be derailed. These fears have hurt risk sentiment globally and have undermined commodity prices which is bad for Australian and New Zealand exports.

Earlier today, the Reserve Bank of New Zealand left rates unchanged at 1.75 percent while noting economic growth was weaker than expected at the end of 2016.

In its monetary policy statement, the RBNZ said there has been an improvement in global growth over the past two months, but “major challenges remain with on-going surplus capacity in the global economy and extensive geo-political uncertainty.

It further added, “Global headline inflation has increased, partly due to a rise in commodity prices, although oil prices have fallen more recently. Core inflation has been low and stable. Monetary policy is expected to remain stimulatory, but less so going forward, particularly in the U.S.

NZDUSD
Daily NZD/USD

The RBNZ said that gross domestic product in October-December was “weaker than expected…but some of this is considered to be due to temporary factors.

“The growth outlook remains positive, supported by on-going accommodative monetary policy, strong population growth, and high levels of household spending and construction activity” while “house price inflation has moderated, and in part reflects loan-to-value ratio restrictions and tighter lending conditions.

“It is uncertain whether this moderation will be sustained given the continued imbalance between supply and demand,” the RBNZ cautioned.

Finally, monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly,” the central bank statement said.

While the healthcare vote is expected to take center stage, investors will still have the opportunity to react to U.S. weekly unemployment claims and new home sales. FOMC Members Neel Kashkari and Robert Kaplan are also scheduled to speak. Fed Chair Janet Yellen is also expected to deliver a key speech that could move the markets.

On Wednesday, Dallas Federal Reserve Bank President Robert Kaplan said, “I think we are moving toward a period where we should begin allowing the balance sheet to gradually and patiently run off. But I think we have work to do, probably, to get to that point.”

Essentially, Kaplan was saying that with the U.S. workforce nearly fully employed and inflation heading toward 2 percent, the Federal Reserve should raise interest rates two more times this year and continue to work on a plan to gradually trim its massive balance sheet.

Fed Chair Janet Yellen could move the markets today if she offers some insights for market participants on the pace of future rate hikes.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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