The Australian Dollar posted a two-sided trade last week before closing lower. The AUD/USD settled at .7607, -0.0005 or -0.07%. The Aussie was pressured by the divergence between the hawkish U.S. Federal Reserve and the dovish Reserve Bank of Australia.
The New Zealand Dollar was helped by technically oversold conditions and an upbeat RBNZ Financial Stability Report and friendly remarks from RBNZ Governor Spencer. The NZD/USD settled at .6882, up 0.0016 or +0.23%.
In its financial stability report, New Zealand’s central bank said it would unwind some restrictions on home loans to partly offset the impact of planned government curbs on the country’s housing market, which has cooled in recent months.
In other news affecting the spread between U.S. Government Bonds and Australian and New Zealand Government Bonds, Fed Chair nominee Jerome Powell and current Fed Chair Janet Yellen testified before Congress last week.
During his Senate confirmation hearing Tuesday, Powell did not commit definitively to a December rate hike, but strongly hinted that the likelihood is growing. In doing so, he also indicated that markets can expect more of the same from Fed leadership, even though there will be a new person in the chair position.
“The case for raising interest rates at our next meeting is coming together,” Powell told the Senate Banking Committee. “I think the conditions are supportive of doing that.”
On Wednesday Fed Chair Yellen gave the dollar a boost when she said the central bank is concerned with letting growth get out of hand so is committed to continuing to raise rates in a gradual manner. Yellen did not specifically commit to a December rate hike, but indicated that her views have not changed with her desire for the central bank to continue normalizing policy.
Also on Wednesday, the Senate moved to start debate on the Republican tax bill. This also was a positive development for the U.S. Dollar. However, the greenback retreated on Thursday after the tax reform vote ran into a snag. This news combined with reports Michael Flynn may implicate President Donald Trump in the Mueller Russian investigation drove the dollar index lower on Friday, but the index was still able to hold on to its weekly gains.
Early this week, we’ll be looking for a reaction to the news over the week-end that Senate Republicans cleared another hurdle towards tax reform. There is expected to be some debate because of differences in the Senate and House versions of the bill. This could cause volatility if it leads to further delays.
The Russian probe investigation will also be a factor that could cause surprises and increased volatility.
The week starts out with remarks from RBNZ Governor Spencer early Tuesday.
Australian Dollar traders will have a lot on their table with data on the Current Account, Retail Sales, Quarterly GDP and Trade Balance. The Reserve Bank of Australia will release its Rate Statement on Tuesday.
In the U.S., the focus will be on ISM Non-Manufacturing PMI, Weekly Unemployment Claims and the November Non-Farm Payrolls report.
Stripping everything aside, the key market drivers will be the direction of U.S. Treasury yields and appetite for risky assets.
This article was originally posted on FX Empire
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