Australia Markets close in 4 hrs 9 mins

AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Testing Key Retracement Zone

James Hyerczyk

The Australian Dollar was pressured against the U.S. Dollar this week by rising U.S. Treasury yields, a drop in demand for higher risk assets and a somewhat dovish Reserve Bank of Australia monetary policy statement. On Friday, the Aussie touched its lowest level since December 27 before settling higher for the day.

The AUD/USD finished Friday’s session at .7809, up 0.0028 or +0.36%.

Daily AUD/USD

Treasury yields were steady on Friday, but earlier in the week the benchmark 10-year Treasury Note hit a four-year high and U.S. stock indexes posted their worst week in two years. Although the intraday stock market weakness played a major role in the currency’s early weakness, it was aided by relatively dovish comments from RBA chief Philip Lowe and the RBA monetary policy statement.

The RBA once again said that an appreciating currency would dampen the outlook for domestic growth and inflation. The central bank also trimmed its unemployment forecasts slightly out to mid-2019 (now 5.25% rather than 5.5%), but kept its forecast for underlying inflation just about unchanged, expecting core consumer price growth of 2% by the end of 2019. The RBA also noted modest improvements in household consumption and a sunny outlook for business investment.

The RBA also said that growth is expected to remain reasonably upbeat by developed-market standards. Gross Domestic Product gains of 3.2% are still forecast this year and next. December loan levels also fell 2.3% versus an expected 1% slip.

Earlier in the week, the RBA left its benchmark interest rate at a record low of 1.50% this month, as widely expected. Traders think the next move when it comes will be a rate increase, but they don’t expect it until the end of this year at the earliest according to futures market pricing.

The main range is .7501 to .8135. Its 50% to 61.8% retracement zone is .7818 to .7743. The AUD/USD is currently testing this zone. Trader reaction to this test will determine the near-term direction of the Forex pair.

A slight downshift in U.S. Treasury yields combined with stabilizing equity prices could trigger a move over .7818. This could lead to a meaningful short-covering rally. However, if U.S. rates continue to rally and investors continue to shed higher-risk assets, sellers could drive the AUD/USD through .7743.

This article was originally posted on FX Empire

More From FXEMPIRE: