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AUD/USD and NZD/USD Fundamental Daily Forecast – Tumbling Yields Making Aussie, Kiwi Less-Desirable Assets

James Hyerczyk
With Australian futures fully pricing a quarter point cut in the 1.5 percent cash rate as soon as August, the AUD/USD is likely to remain under pressure over the near-term. The NZD/USD is also likely to follow the Aussie Dollar lower. Furthermore, stable rates in the U.S. are also expected to exert pressure on the two currencies.

The Australian and New Zealand Dollars are trading lower, reversing earlier strength as the euphoria in response to potentially positive news over Brexit has worn off. Traders are now waiting to see if the European Commission will approve a delay in the UK’s exit from the EU.

Traders are also responding to mixed-to-weaker economic data from China and the lack of progress in U.S.-China trade talks. Traders are also saying that a steep drop in Australian Government bond yields are making the Aussie a less-desirable asset.

At 07:11 GMT, the AUD/USD is trading .7062, down 0.0033 or -0.47% and the NZD/USD is at .6838, down 0.0022 or -0.28%.

Weaken on Brexit Issues

Early in the session, the Aussie and Kiwi were supported by the news that British lawmakers voted against a potentially disorderly “no deal” departure from the European Union. Sellers came in as uncertainties developed over the outcome of today’s vote on delaying the Brexit departure scheduled for March 29. They want to iron out some details over the length of the postponement.

Pressured by Weak China Data

Also helping to pressure the Australian and New Zealand Dollars was a report that showed growth in China’s industrial output fell to a 17-year low in the first two months of the year, pointing to further weakness in the world’s second-biggest economy. Furthermore, industrial output rose 5.3 percent in January-February, the National Bureau of Statistics (NBS) said, less than expected and the slowest pace since early 2002. Factory output growth had been expected to slow to 5.5 percent from December’s 5.7 percent.

Additionally, an official factory survey showed manufacturing output contracted in February for the first time since January 2009, while factory-gate inflation in February hovered at multi-year lows, pointing to further pressure on industrial profits.

Aussie, Kiwi Yields Tumble

Australian and New Zealand domestic bond yields are extending their recent steep declines to multi-year lows, widening the spread between U.S. Government bond yields and making the U.S. Dollar a more attractive asset.

Daily Forecast

With Australian futures fully pricing a quarter point cut in the 1.5 percent cash rate as soon as August, the AUD/USD is likely to remain under pressure over the near-term. The NZD/USD is also likely to follow the Aussie Dollar lower. Furthermore, stable rates in the U.S. are also expected to exert pressure on the two currencies.

A surprise announcement of a trade deal between the US and China as well as further positive developments over Brexit could produce short-covering rallies, however, these are expected to be short-term counter-trend moves.

In other news, investors will get the opportunity to react to the latest U.S. data on Import Prices, Weekly Unemployment Claims and New Home Sales. These reports are not expected to be major market moving events, however, if they meet expectations then this will only mean the Fed will continue to hold interest rates steady, while the rest of the world downgrades their economies and threaten to cut rates.

This article was originally posted on FX Empire

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