AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured by “Risk-Off” Investor Sentiment

The Australian and New Zealand Dollar closed lower on Thursday on profit-taking amid a decline in appetite for risky assets. The Aussie was also pressured by a drop in the Australian trade surplus.

On Thursday, the AUD/USD settled at .7625, down 0.0041 or -0.54% and the NZD/USD finished the session at .7029, down 0.0004 or -0.06%.

The selling pressure started early in Asia on Thursday following the release of Australian trade data for April. While largely in line with expectations, it was enough to lead to profit-taking in the Aussie. The move also gave Kiwi investors an excuse to book profits.

Since the Australian and New Zealand economies are reliant on the performance of the global economy, their currencies are often seen as a barometer of investor risk sentiment. If the global economy starts to weaken then the Australian and New Zealand Dollars will have a hard time sustaining any rallies.

For this reason, renewed concerns over emerging markets appeared to drive the move out of risky currencies like the Aussie and Kiwi, possibly in response to speculation that the ECB may conclude its asset purchase program later this year.

One reason for the move out of risky assets was concern that the days of liquidity expansion from major central banks may be coming to an end. Another reason was heightened concern over Brazil. The gradual slowdown, then eventual withdrawal, of central bank liquidity as QE programs are wound down then reversed, has raised the prospect of increased volatility in emerging markets.

Forecast

The weakness is continuing Friday with the Australian and New Zealand Dollars trading lower early in the session. Traders are being influenced by emerging market concerns and a move to safe-haven assets as well as fresh economic data from China. There are no major reports in the U.S. The week ends with the release of Chinese consumer and producer inflation data early Saturday.

At 0608 GMT, the AUD/USD is trading .7605, down 0.0019 or -0.25% and the NZD/USD is trading flat.

Today’s trade balance report showed China’s surplus missed expectations. This news likely means a lower-than-anticipated boost to local economic growth as net exports are one of the four components of GDP. However, in both measurements, exports and imports rose above estimates.

The report showed that Chinese external iron ore purchases were up in April. This is actually good news for the Australia Dollar, but today’s “risk-off” sentiment is putting pressure on both the Aussie and Kiwi.

This trend is likely to continue today ahead of the start of the G-7 conference. Tensions will be high going into the meetings, which showed weigh on risk sentiment.