AUD/USD and NZD/USD Fundamental Daily Forecast – Focus on Yellen Testimony, U.S. Political Uncertainty

The Australian and New Zealand Dollar finished mixed on Tuesday as investors reacted to political events in the U.S. as well as domestic data. Volume was light as investors prepared for the start of two-day testimony before Congress by Fed Chair Janet Yellen.

The AUD/USD settled at .7637, up 0.0031 or +0.41% and the NZD/USD settled at .7224, down 0.0050 or -0.69%.

The Australian Dollar was firm early in the session on Tuesday after the release of upbeat economic data. NAB Business Confidence came in better than expected at 9 and the previous month was revised higher to 8. Home Loans missed the forecast but improved from the previous month, coming in up 1.0% from -1.9%.

The New Zealand Dollar was under pressure most of the session. Sellers hit the currency after consumer spending data in the country for June came in below estimates.

Both the Aussie and Kiwi firmed after the U.S. Dollar plunged in reaction to emails released by President Donald Trump’s eldest son suggesting he welcomed Russia’s help in last year’s election campaign.

The emails showed that Trump, Jr. agreed last year to meet a woman he was told was a Russian government lawyer who might have damaging information about Democratic White House rival Hillary Clinton as part of Moscow’s official support for his father.

In Fed news, Minneapolis Fed President Neel Kashkari said separately that U.S. banks are still too big to fail.

Fed Governor Lael Brainard said the central bank should soon begin reducing its balance sheet, as long as economic data on U.S. jobs and growth holds up.

Philadelphia Fed President Patrick Harker, a FOMC Member, told the Wall Street Journal that if inflation did not move toward the Fed’s 2 percent target, then this would be a reason to hold off raising rates.

In economic news, the NFIB Small Business Index came in below expectations at 103.6. The JOLTS report showed fewer than expected job openings, coming in at 5.67 million versus the 5.98 million estimate. Final Wholesale Inventories were 0.4% higher. This was slightly above the forecast and previous read.

Forecast

Earlier today, the AUD/USD received a boost from a better-than-expected Westpac Consumer Sentiment report. It came in at 0.4%, up from the previous -1.8%.

Later today, investors will get a chance to react to Fed Chair Janet Yellen’s two-day semi-annual monetary policy testimony to Congress starting at 1400 GMT. Yellen is expected to reiterate her previous comments about the direction of interest rates as stated in the Fed’s latest monetary policy statement. Therefore, expect her to say the Fed could raise rates at least one more time in 2017 and perhaps as many as three times in 2018. She will also express her concerns about low inflation, but tell Congress she believe the muted inflation is only temporary. She could also say that inflation will pick up when employers start to increase wages. Finally, Yellen should say the Fed is prepared to begin trimming its balance sheet and that the process will be gradual as not too disrupt the financial markets and the economy.

Traders should also continue to monitor the events in Washington. The latest news seems to be the strongest evidence linking the Trump campaign to Russia’s plan to influence the election. Any further develops that point toward a link between Trump and the Russians will be bearish for the U.S. Dollar.