AUD/USD and NZD/USD Fundamental Forecast – September 27, 2016
It was a quiet day in the Forex markets on Monday as investors prepared for the start of the OPEC meeting in Algiers and the first U.S. presidential debates at 0100 GMT. There wasn’t much fresh economic data to react to and the thin volume led to a two-sided trade. The AUD/USD managed to recover from early weakness to close at .7635, up 0.0014 or +0.19%. The NZD/USD bounced back from a short-term oversold condition to finish at .7273, up 0.0033 or +0.45%.
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On the economic front, U.S. new home sales beat the estimate of 598K to post a read of 609K. There was little reaction by traders to the news.
Most of the reaction by the Australian and New Zealand Dollar was triggered by the weak U.S. Dollar. It fell in response to comments from Bank of Japan Governor Haruhiko Kuroda who said on Monday the central bank stood ready to use every possible policy tool to achieve its 2 percent inflation target. He also said no big increase or decrease to its bond buying was expected for now.
Kuroda’s comments essentially meant the BOJ was losing its battle to stimulate the economy and weaken the Yen. This sent the Yen higher and the Dollar lower. The lower dollar helped boost demand for the higher yielding Australian and New Zealand Dollars.
The price of the AUD/USD and NZD/USD probably would have risen a lot higher if not for the weakness in the U.S. equity markets. Their weakness helped reduce demand for higher yielding assets.
FORECAST
Early Tuesday, AUD/USD and NZD/USD traders will focus their attention on the U.S. presidential debates. Uncertainty leading up to the debate definitely hurt the U.S. Dollar on Monday.
Since candidate Clinton is the front-runner in this election, a debate win is likely to be celebrated by risk takers. Therefore, I can see the Australian and New Zealand Dollars rallying in a knee-jerk reaction to her debate win.
If Trump wins the debate then risky assets are likely to sell off. This could drive global equity markets lower, taking along with them the Aussie and the Kiwi. The dollar and Yen could rally if investors need to seek shelter to protect their assets.