AUD/USD and NZD/USD Fundamental Forecast – March 29, 2017

The Australian and New Zealand Dollar finished mixed on Tuesday as investors reacted to a rebound in U.S. interest rates and equities. Traders aren’t strictly following the fundamentals or technicals at this time. A lot of the movement is being generated by end of the month position-squaring. Investors are acting like they aren’t sure how to play the short-term news events.

The AUD/USD finished at .7635, up 0.0019 or up 0.25%. The NZD/USD closed at .7014, down 0.0026 or -0.38%.

Both Aussie and Kiwi traders are being forced to deal with two factors:  The direction of U.S. interest rates and demand for risky assets which affects the carry trade.

Additionally, Australian Dollar traders are watching iron ore prices.

Early in the U.S. session on Tuesday, both the AUD/USD and NZD/USD broke sharply after the release of a key U.S. report reinforced rate hike expectations. According to the Conference Board, the U.S. consumer confidence index hit 125.6 in March, beating expectations for a reading of 114 and well above the February level of 116.1. This was its highest level since December 2000.

A stronger U.S. Dollar also pressured the Aussie and the Kiwi. It was boosted by positive comments from U.S. Federal Reserve Vice Chairman Stanley Fischer. He said in an interview with CNBC that two more increases to U.S. overnight rates this year seemed “about right.”

A sharp rise in U.S. equities seemed to affect the Aussie carry trade more than the Kiwi. Additionally, technical factors may have influenced the price action in the Aussie market. It turned around suddenly when the currency touched a retracement level at .7588. The buying was strong enough to produce a major reversal on the upside on the daily chart.

Forecast

On Wednesday, investors will get the chance to react to a Fed speaker and Pending Home Sales.

FOMC Member Charles Evans is scheduled to speak. The Federal Reserve Bank of Chicago President could drive interest rates higher as well as the U.S. Dollar if he continues with his hawkish commentary. Earlier in the week, he said two interest-rate increases may be the right amount of tightening for the U.S. economy this year given uncertainty surrounding the outlook for inflation and government spending.

The U.S. Dollar and Australian iron ore prices could continue to be supported on Wednesday if the outlook for tax reform and increased fiscal spending continues to improve.

The New Zealand Dollar may have a little trouble rallying if investors continue to focus on the U.S. Dollar. However, if they shift their focus on the carry trade and stocks rally sharply higher, then the currency could receive a boost.