AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured by Renewed Geopolitical Fears, Worries Ahead of Fed Minutes
Renewed geopolitical fears helped drive the Australian and New Zealand Dollars off their highs and lower for the session on Tuesday as investors reacted negatively to comments by President Trump on North Korea and the United States – China trade talks.
The AUD/USD settled at .7576, down 0.0006 or -0.08% and the NZD/USD finished at .6935, up 0.0011 or -0.15%.
Early in the session, the Aussie and Kiwi were supported by a drop in U.S. Treasury yields that pulled back from last week’s seven-year highs.
Demand for higher risk currencies like the Australian and New Zealand Dollars dropped on Tuesday after President Trump said he was not satisfied with the U.S. – China trade talks. He also said a highly anticipated summit with North Korea may not happen after all.
Trump’s comments about trade probably had the biggest influence on the Aussie and Kiwi since Australia and New Zealand are major trading partners with China.
Trump told reporters he was “not satisfied” with trade talks that took place with China last week. He called the negotiations a “start” as his administration keeps working toward a final deal to address trade imbalances with Beijing.
Forecast
Early Wednesday, the Australian and New Zealand Dollars are trading mixed. There has been very little reaction to the late session events on Tuesday.
At 0038 GMT, the AUD/USD is trading .7573, down 0.0003 or -0.04% and the NZD/USD is at .6938, up 0.0003 or +0.06%.
In Australia, the MI Leading Index came in at 0.2%, and the previous report was revised higher to -0.1%. Later today, a report on Construction Work Done will be released. It is expected to show an increase of 1.1%, up from -19.4%. Reserve Bank of Australia Governor Philip Lowe is also scheduled to speak at 0800 GMT.
In the U.S., the focus will be on the Fed Meeting Minutes, due to be released at 1800 GMT, but prior to that, investors will get the opportunity to react to the latest data on Flash Manufacturing PMI, Flash Services PMI and New Home Sales.
Flash Manufacturing PMI is expected to come in at 56.6. Flash Services PMI is expected to rise slightly to 54.9 and New Home Sales are forecast to drop to 680K from 694K.
Traders will be watching the Fed minutes for the central bank’s opinion on inflationary pressures and the future path for interest rates.
Some traders believe the Fed minutes may contain information about what the Fed will do in 2019. Others are saying the Fed may have discussed current market developments, including the tightening in financial conditions, the strengthening of the dollar, and the flattening and, perhaps ultimately, inversion of the yield curve.
If the Fed continues increasing the federal funds rate and longer-term yields do not move higher, an inversion in the yield curve is possible. An inverted yield curve is when short-dated yields move above long-dated yields. An inversion is often called the best predictor of a recession.
Finally, Analysts will be looking for the minutes to clarify new language in the May policy statement, particularly the addition of the phrase the Fed officials expect inflation to run near the Committee’s “symmetric” 2% objective over the medium term.
Basically, the most important thing the Fed minutes could tell investors is how far officials will let inflation rise above their 2% target.
This article was originally posted on FX Empire
