Yahoo Finance AUD/USD and NZD/USD Fundamental Daily Forecast – Greenback Plunges on New North Korean Threat
A plunge in the U.S. Dollar is helping to boost the Australian and New Zealand Dollar on Friday. The catalyst behind the drop in the Greenback was increased tensions from the North Korean peninsula.
Early Friday, North Korea said it might test a hydrogen bomb over the Pacific Ocean after U.S. President Donald Trump told the United Nations he would destroy the country if the rogue nation threatened the United States or its allies. This news took risk off the table, driving investors out of the U.S. Dollar.
At 1011 GMT, the AUD/USD is trading .7968, up 0.0035 or +0.44% and the NZD/USD is at .7327, up 0.0020 or +0.28%.
Adding to the “risk-off” scenario was S&P Global Ratings’ downgrade to China’s sovereign credit rating. On Friday, the rating agency said the country’s attempts to reduce risks from its rapid buildup in debt are not working as quickly as expected and credit growth is still too fast.
Earlier in the session, the NZD/USD was under pressure due to hawkish U.S. Federal Reserve activity on Wednesday. The Fed left its benchmark interest rate unchanged, but it also announced it would start reducing its balance sheet in October and it left open the possibility of a third rate hike in December.
Also pressuring the New Zealand Dollar were concerns over Saturday’s New Zealand elections.
The latest opinion polls show a very tight race, although the incumbent National Party is slightly ahead. Traders are saying that a win by the National Party could trigger a short-covering rally.
The AUD/USD was also under pressure earlier in the session in reaction to rising Treasury yields in the United States.
Forecast
It looks as if today is going to be a “risk off” session because of the North Korean threat to test a nuclear device of “unprecedented scale” in the Pacific Ocean, as reported by South Korea’s Yonhap News Agency.
“Risk off” will mean lower U.S. Treasury yields and reduced demand for higher risk assets like stocks. If investors continue to seek shelter then the AUD/USD and NZD/USD will continue to be underpinned throughout the session.
Since North Korea may do this test over the week-end, investors may feel they have to protect their assets over the week-end. Therefore, the upside pressure on the AUD/USD and NZD/USD should remain all session.
This article was originally posted on FX Empire
