AUD/USD and NZD/USD Fundamental Forecast – November 21, 2016

The Australian and New Zealand Dollars finished the day and week in a position to resume the current sell-off early Monday. The AUD/USD closed at .7332, down 0.0075 or -1.02%. The NZD/USD finished at .7006, down 0.0017 or -0.23%.

Sellers were continuing to react to Fed Chair Janet Yellen’s hawkish comments on Thursday that all but solidified a central bank rate hike at its December monetary policy meeting. Yellen told a congressional panel that a rate increase was likely “relatively soon.”

In other news, Federal Reserve policymaker James Bullard said he is leaning towards supporting an interest rate hike in December. He also said that the many changes under incoming president Donald Trump could affect future policy.

“Markets are currently putting a high probability on a December move by the FOMC. I’m leaning towards supporting that,” Bullard, a voting member of the central bank’s rate-setting committee, told a conference in Frankfurt.

Federal Reserve Bank of New York President William Dudley said any spending and tax changes from Trump’s administration should focus on measures that lift productivity.

“This type of fiscal stimulus probably does matter in terms of how you think about its impact on the economy and its potential impact on inflation over the medium term,” Dudley said.

Kansas City Fed President Esther George issued a statement saying the central bank should increase rates “sooner rather than later.”

“My view is that monetary policy should avoid deliberately stoking the risks that come with overheating the U.S. economy and instead, slowing raise the federal funds rate to promote maximum employment commensurate with the economy’s long-run potential to increase production,” George said.

Forecast

The lack of any major economic reports on Monday and the start of a holiday-shortened week in the U.S. likely mean that the price action today will be all about the momentum generated by Friday’s steep sell-off into the close.

If the sellers continue to come in with big volume then support for the AUD/USD and NZD/USD should continue to erode. Currently, the Australian Dollar is trading below its low after Brexit and the New Zealand Dollar is rapidly approaching this level.

If the major U.S. banks decide to pack it in early then we could see profit-taking after the recent decline. This could trigger a short-covering rally today and perhaps throughout the week.

We expect to see volume and volatility taper-off as the market approaches Thursday’s U.S. bank holiday. The U.S. Treasury markets are open half a day on Wednesday, closed Thursday and who knows who is coming to work on Friday. This is why this week is one of the slowest of the year.

Try to avoid buying strength and selling weakness because you can get trapped under the right conditions.