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AUD/USD and NZD/USD Fundamental Daily Forecast – Rising Treasury Yields Underpin Greenback, Pressure Aussie

James Hyerczyk

The AUD/USD fell to a six-week low on Thursday as the U.S. Dollar extended recent gains. Higher U.S. Treasury yields helped make the Greenback a more attractive investment. Volatility in the stock market and lower commodity prices also weighed on the Aussie.


Earlier in the session, Australian central bank Governor Philip Lowe said he doesn’t “see a strong case” for a near-term interest-rate adjustment, reiterating he isn’t obliged to follow a global withdrawal of stimulus.

“Our circumstances are a little different,” Lowe said. “We are still some way from what could be considered full employment and our central scenario for inflation is for it to remain below the mid-point of the medium-term target range for the next couple of years.”

Lowe also said he expects to see progress on reducing the jobless rate and moving inflation to the mid-point of its 2 percent to 3 percent target. If that happens, “at some point it will be appropriate for interest rates in Australia to also start moving up,” he said.

The Reserve Bank of Australia also said that a floating exchange rate has allowed countries like Australia, which didn’t lower interest rates to the “extraordinary low levels” seen elsewhere, to retain flexibility in setting policy based on domestic factors.

In economic news, U.S. Weekly Unemployment Claims came in well below the estimate at 221K. Traders were looking for 232K. Mortgage Delinquencies rose 5.17%, up from 4.88%.

The 10-year Treasury Note yield nearly surpassed a 4-year high of 2.885 percent Thursday morning, a level that helped trigger a global sell-off in equity markets on Monday. The 30-year bond yield hit a high of 3.168 percent, its highest level since March 15, when the 30-year yielded as high a 3.177 percent.

The Treasury Department auctioned $16 billion in 30-year bonds at a high yield f 3.121 percent. The bid-to-cover ratio, and indicator of demand, was 2.26. Indirect bidders, which include major central banks, were awarded 61.2 percent. Direct bidders, which includes domestic money managers, bought 8.1 percent.

The key events on Friday will be the Reserve Bank of Australia’s statement of monetary policy and the Australian Bureau of Statistics’ housing finance lending data for December.

The growth and headline inflation forecasts are likely to be unchanged but no guidance was given on their underlying inflation forecast.

December housing finance is expected to fall one percent although Westpac expects “a 1.5 percent drop with financing holding up better than expected through 2017’s slowdown despite auction activity, turnover and price growth slowing materially in the major eastern markets.”

The chart pattern suggests we could see a short-covering rally on move through .7818. The next key downside target is .7743.

This article was originally posted on FX Empire