AUD/USD and NZD/USD Fundamental Weekly Forecast – Watch for New Zealand Election Surprise

The Australian and New Zealand Dollars finished mixed last week against the U.S. Dollar. Both were under pressure all week until Friday when a better-than-expected economic report in New Zealand triggered a surge in the Kiwi. Prices retreated early last week mostly due to a sharp rise in U.S. Treasury yields, which made the U.S. Dollar a more attractive investment.

The AUD/USD settled the week at .8000, down 0.0054 or -0.67%. The NZD/USD finished the week at .7288, up 0.0028 or +0.39%.

Australian Dollar

The Australian Dollar finished the week lower despite the currency trading near a two-and-a-half year high. The price action suggested that buyers were scarce even though the fundamentals are strong. Sellers said technical factors indicated an overvalued market.

Commodity prices have been lifting this currency with iron ore prices sitting at high levels, coal prices moving higher and demand for these key Australian exports expected to continue to rise due to improving global growth.

Sellers also maintained control of the market even after the Australian Employment Change report showed the economy added 54.2K jobs versus a 17.5K estimate. The Unemployment Rate was unchanged at 5.6%.

New Zealand Dollar

A sharp rise in U.S. Treasury yields also pressured the New Zealand Dollar most of the week, but the currency erased all of its earlier losses with a strong performance on Friday.

The Kiwi benefitted on Friday from a weaker U.S. Dollar due to disappointing U.S. retail sales data and after domestic data showed that the manufacturing sector in New Zealand continued to expand in August, and at a faster rate.

Forecast

Driving the Australian Dollar price action early this week is likely to be the Reserve Bank of Australia monetary policy minutes on Tuesday. The catalysts behind the price action in the New Zealand Dollar this is week is likely to be quarterly GDP on Thursday and the Parliamentary Elections on Friday.

We could see volatility in the New Zealand Dollar throughout the week due to speculation over the election. Traders are preparing for a surprise because the center-right’s decade-long rule is being seriously challenged by a resurgent Labour Party.

On Wednesday, the Federal Open Market Committee will make its interest rate decision, and issue its monetary policy statement. The FOMC will also release its economic projections and hold a press conference.

The Fed is expected to leave its benchmark interest rate at<1.25%. However, investors will be more interested in the Fed’s plans to begin reducing its balance sheet and the timing of the next interest rate hike.