AUD/USD and NZD/USD Fundamental Forecast – October 19, 2016

The Australian and New Zealand Dollars performed well on Tuesday with both posting solid gains for different reasons. The AUD/USD finished the session at .7665, up 0.0038 or +0.50%. The NZD/USD closed at .7189, up 0.0056 or +0.79%.

The Australian Dollar rose after the release of the Reserve Bank of Australia October meeting minutes showed the central bank was in no hurry to raise inflation back to its 2.5% target. “There was a reasonable prospect of sustaining growth in economic activity that would support further employment growth and, in time, a gradual increase in wage growth and inflation,” noted the RBA.

Traders pointed out that the October meeting may not be as important as the November meeting because of the timing of the third quarter CPI report available on October 26. The RBA pointed out that this data “would be available at the next meeting,” which “would provide an opportunity to consider the economic outlook.”

Some of the strength in the Aussie was also derived from better-than-expected inflation data in New Zealand and a weaker U.S. Dollar that was under pressure because of falling U.S. Treasury yields.

 

The New Zealand Dollar rose sharply after third-quarter Consumer Inflation data came in at 0.2%, better than the expected 0.0%, thereby reducing traders’ bets that the Reserve Bank of New Zealand will slash rates further in November.

In other news, U.S. consumer inflation came in at 0.3%, matching the estimate. Core CPI was 0.1%, below the 0.2% forecast.

FORECAST

Early today, traders will get the opportunity to react to the domestic data and a slew of economic data from China. The Chinese data is likely to be the big market moving event today. Solid data will likely mean “risk on” which should boost the AUD/USD and NZD/USD. Weaker-than-expected data should pressure both the Aussie and the Kiwi and drive investors into the safety of the U.S. Dollar.

The first report is the New Zealand GDT Price Index. It is expected to improve from the last report which came in 3.0% lower. This is followed closely by the MI Leading Index report from Australia which is considered minor to traders. The last report came in at 0.0%. A higher reading will indicate an uptick in inflation.

At 0200 GMT, China will release data on GDP, Industrial Production, Fixed Asset Investment and Retail Sales. The GDP report is expected to come in at 6.7%. Industrial Production at 6.4%, Fixed Asset Investment at 8.2% and Retail Sales at 10.7%.

The GDP report is most important and should set the tone for the day in several markets including Forex and the global equity market. Look for increased demand for higher risk if the number exceeds expectations.

During the U.S. session, investors will get the opportunity to react to U.S data which includes Building Permits, Housing Starts and the Beige Book. None are important enough to affect the Fed’s interest rate decision.

Look for the AUD/USD and NZD/USD to rally if China’s GDP beats the 6.7% estimate and for both to weaken if the number comes in below expectations.