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

The Australian and New Zealand Dollars are trading nearly flat as investors amid growing concerns that the GOP (the Republicans) may not be able to push through the American Health Care Act.

At 1727 GMT, the AUD/USD was trading .7623, down 0.00035 or -0.05% and the NZD/USD was up 0.00031 or +0.04% at .7032.

Early in the U.S. trading session, Speaker Paul Ryan told President Trump where the bill stands. Currently, they don’t have enough votes to pass.

The passing of the healthcare bill is being viewed as a litmus test of whether U.S. President Donald Trump will be able to pass fiscal stimulus.

This week has been tumultuous to say the least for the Republican Party. Republican lawmakers have struggled all week to overcome differences over the legislation after Trump walked away from negotiations, telling them to pass the bill on Friday or keep Obamacare in place. The vote was postponed on Thursday due to the lack of support.

Investors are mixed on whether the potential defeat for Trump would hit the dollar and stock markets. Some believe they would go down because it would be seen as symptomatic of his inability to get reforms through Congress. Others believe it would be bullish for the dollar and stocks because it would mean Trump would be able to move straight onto tax reforms.

I expect to see a volatile reaction in the Forex markets initially, but then for the dollar to settle into a range. Stocks are likely to be more volatile and this could be a problem for the Australian and New Zealand Dollars.

If stocks break hard then the Aussie and Kiwi are likely to follow them lower because of the unraveling of the carry trade. Investors would aggressively shed risky assets, putting pressure on the AUD/USD and NZD/USD like they did earlier in the week.

A rally in the stock market would likely mean investors have moved on to tax reforms and this is what they want to see anyway. The repealing of Obamacare may have been a political issue for individuals, but I think the greater impact on the stock market will come from tax reform. This is because tax reform is expected to have a larger impact on businesses which should lead to increased profitability and this is what investors want to see.