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AUD/USD and NZD/USD Fundamental Daily Forecast – Worries Over U.S. Tariffs Drive Aussie, Kiwi Lower

By:
James Hyerczyk
Published: Jan 23, 2018, 08:05 UTC

The catalyst for today’s turnaround in the Australian and New Zealand Dollars is the news of  U.S. tariffs.

AUD/USD and NZD/USD

The Australian and New Zealand Dollars are trading lower against the U.S. Dollar early Tuesday in a volatile trading session. The Aussie nudged slightly higher earlier in the session before turning lower, but the rally ran out of buyers as the currency neared last week’s high at .8038.

The Kiwi surged to its highest level since September 21 before reversing course. The price action suggests the selling is greater than the buying at current price levels, putting it in a position to post a potentially bearish closing price reversal top.

At 0737 GMT, the AUD/USD is trading .7971, down 0.0045 or -0.57% and the NZD/USD is at .7319, down 0.0007 or -0.10%.

AUDUSD
Daily AUD/USD

A surge in demand for higher risk assets may have been behind the early strength. This move was fueled by the end of the U.S. government shutdown.

Late in the session on Monday, U.S. President Donald Trump signed into law a bill that ended the government shutdown. The bill funds the government for 17 days, or until February 8, and it funds the popular CHIP children’s insurance program for six years. It does not include a permanent fix for the Obama-era DACA program, which Senate Democrats had originally demanded.

It other news, Westpac said the Australia Dollar is “expensive” again. The bank said the recent rally was fueled by a number of factors. The Westpac Australian export weighted commodity index is not at a one-year high. Additionally, risk sentiment in global financial markets has also been positive and the Australian-U.S. 2 year swap spread is at fresh lows going back to December 2000.

Based on these factors, Westpac says that their fair value model framework suggests that as much as 70% of the recent rise in the Australian Dollar could have been driven by the recent slide in the U.S. Dollar. If history is a guide, that leaves the Australian Dollar looking ‘expensive’ at least on the basis of their fair value framework.

NZDUSD
Daily NZD/USD

Forecast

The catalyst for today’s turnaround in the Australian and New Zealand Dollars is the news of  U.S. tariffs. Risk sentiment was hit when President Donald Trump slapped steep tariffs on imported washing machines and solar panels, in what might only be the first of several potential trade restrictions.

The news of U.S. tariffs sparked fears of a global trade war, offsetting upgrades to the world growth outlook and a deal to re-open the U.S. government.

While the tariffs were not aimed directly at Australian or New Zealand goods, the countries are heavily reliant on free trade and particularly of commodities that fuel global supply chains.

New Zealand investors remain in a wait-and-see mode until fourth-quarter consumer price index figures are released on Thursday.

If the new tariffs remain the key issues today then the AUD/USD and NZD/USD are likely to remain under pressure throughout the session.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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