AUD/USD and NZD/USD Fundamental Daily Forecast – Conflicting Trade War News Could Cause Two-Sided Trade

A strong recovery by the U.S. Dollar on Tuesday pressured the Australian and New Zealand Dollars, leading the currencies to post a lower close.

The AUD/USD settled at .7677, down 0.0071 or -0.92% and the NZD/USD closed at .7263, down 0.0033 or -0.46%.

The catalysts behind the weakness was the flaring of trade war fears. The sell-off in the stock market, the Australian Dollar and New Zealand Dollar was fueled by reports that the Trump administration is considering a crackdown on Chinese investments in the U.S., sparking a fresh wave of concern about the potential for a trade tariff between the two nations to turn into a nasty trade war.

There were no major economic reports so most of the price action was driven by sentiment and a weak technical chart pattern.

The Aussie and Kiwi held their ground early in the session, but losses accelerated to the downside as U.S. stocks suffered another late session break and sharp sell-off.

In the U.S. on Tuesday, the S&P/CS Composite-20 Home Price Index (HPI) was up 6.4%. This was higher than the 6.1% forecast and last month’s 6.3% increase.

The Conference Board’s Consumer Confidence report came in below expectations at 127.7. Traders were looking for a read of 131.2. Last month’s report was revised lower to 130.0.

The Richmond Manufacturing Index was also a disappointing 15. Traders were looking for 23, down from the previously reported 28.

In other news, the head of the Federal Reserve Bank of Atlanta, Raphael Bostic, waded into a potentially contentious debate at the U.S. central bank on Tuesday over whether to replace its 2 percent inflation target, saying he favors a new and nearly untested monetary policy strategy known as price-level targeting.

Forecast

A slightly lower U.S. Dollar and a slight recovery in the U.S. equity markets early Wednesday are helping to boost the Australian and New Zealand Dollars.

At 0400 GMT, the AUD/USD is trading .7701, up 0.0024 or +0.32% and the NZD/USD is at .7271, up 0.0008 or +0.12%.

Lingering global trade tensions are likely to control the price action today. We’re also expecting to see another volatile two-sided trade because a bullish report is saying China and the U.S. are negotiating behind the scenes to alleviate trade war tensions. While a potentially bearish report is saying the Trump administration may go after Chinese investments in the U.S.

Earlier in the session, ANZ Business Confidence came in at -20.0. This was slightly below the -19.0 estimate.

Wednesday’s market moving event is likely to be the 4Q 2017 Final GDP. It is expected to come in at 2.7%, higher than the previously reported 2.5%. A stronger-than-expected number could underpin the dollar, at least temporarily.

Other reports include the Goods Trade Balance, Preliminary Wholesale Inventories and Pending Home Sales.

Despite the reports, traders are most likely to react to any trade war news.