AUD/USD and NZD/USD Fundamental Daily Forecast – Weak NZ Business Confidence Opens Door to Possible Rate Cut

Domestic economic news is helping to pressure the Australian and New Zealand Dollars early Tuesday. The currencies were already weaker at the start of the session due to expectations of rising U.S. interest rates and weak economic data from China and signs of continued strength in the U.S. economy.

The longer-term fundamentals are bearish and today’s reports take the steam out of any attempt at a counter-trend rally.

Essentially, the Aussie and Kiwi are being pressured by the widening of the spread between U.S. Government bond yields and Australian and New Zealand Government bond yields. This is being caused by the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish Reserve Bank of Australia and the dovish Reserve Bank of New Zealand.

At 0615 GMT, the AUD/USD is trading .7198, down 0.0028 or -0.35% and the NZD/USD is at .6592, down 0.0023 or -0.35%.

Forecast

Both the AUD/USD and NZD/USD are testing key technical areas on the daily chart. Trader reaction to these areas will determine the near-term direction of the Forex pairs. For the AUD/USD, the key area to watch is .7200 to .7172. The NZD/USD key area is .6600 to .6576.

Counter-trend buyers could come in on a test of these areas, but if they fail then look for another acceleration to the downside.

Driving the price action in the Australian Dollar today is the RBA’s interest rate decision. The central bank held its cash rate steady at 1.50 percent on Tuesday as widely expected. It also reiterated comfort with policy settings while noting weakness in the housing market as well as tighter credit conditions.

Most investors are not expecting a move in interest rates until the end of next year. In a statement accompanying the decision, Governor Philip Lowe said he expects to see further progress in reducing employment and returning inflation to target, but that progress “is likely to be gradual”.

In New Zealand, the Kiwi was being pressured by a report that showed business confidence sank to a nine-year low in the third quarter. Traders are selling the NZD/USD because this news leaves open the door to a possible rate cut in the coming quarters if economic growth cools sharply.

The New Zealand Institute of Economic Research’s (NZIER) quarterly survey of business opinion showed a net 30 percent of firms surveyed expected general business conditions to deteriorate compared with 20 percent in the previous quarter.