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AUD/USD and NZD/USD Fundamental Analysis – Forecast for the Week of October 24, 2016

By:
James Hyerczyk
Updated: Oct 22, 2016, 18:09 UTC

The Australian and New Zealand Dollars finished mixed last week due to different fundamental reasons. For the week, the AUD/USD closed at .7604, down

audusd

The Australian and New Zealand Dollars finished mixed last week due to different fundamental reasons. For the week, the AUD/USD closed at .7604, down 0.0012 or -0.15%. The NZD/USD ended the week at .7159, up 0.0077 or +1.08%.

The week started with the Australian and New Zealand Dollars underpinned by a drop in U.S. Treasury yields. This move was fueled by dovish comments from Fed Chair Janet Yellen on October 14. Yellen helped weaken yields and consequently the U.S. Dollar after she suggested the Fed may consider allowing the economy to run hot, which essentially means she favors a lower-for-long approach when it comes to interest rates.

Also pressuring the U.S. Dollar was weaker than expected U.S. consumer inflation data. The CPI came in at 0.3% as expected, but the Core CPI came in at 0.1%, below the 0.2% estimate.

The combination of Yellen’s comments and the CPI data helped push the chances of a Fed rate hike in December from 70% to 65%.

The Australian Dollar found support earlier in the week 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.

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Weekly NZD/USD

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.

The Australian Dollar dropped sharply against the U.S. Dollar on Thursday after the release of disappointing local employment data.

According to the report, fulltime employment dropped by 53,000, which was the largest one-month decline since February 2009. There was an increase in part-time work which softened the blow of the weak data, but it wasn’t strong enough to hike the issues with this report. Additionally, a decline in the participation rate helped push the unemployment rate from 5.7 percent to 5.6 percent. The Employment Change was minus 9.8K, well below the 15.2K estimate.

Better-than-expected U.S. Building Permits data, Existing Home Sales and hawkish comments from FOMC members Stanley Fischer and William Dudley helped strengthen the U.S. Dollar by the end of the week. A steep drop in the Euro because of a dovish decision by the European Central Bank also helped drive the U.S. Dollar higher.

The outlook for a Fed rate hike increased on the news so at the end of the week, the probability of a December rate hike increased from a low of 65% earlier in the week to a high of 75%.

weekly-audusd
Weekly AUD/USD

Forecast

Rising U.S. Treasury yields should continue to pressure the AUD/USD and the NZD/USD at the start of the week.

The key report that should move the Australian Dollar is Consumer Inflation on Wednesday, October 26. It is expected to increase slightly from 0.4% to 0.5%. This report should determine whether the RBA may be encouraged to raise rates one more time before this interest rate cycle ends. Or whether, it ends the cycle at this time. The RBA and bullish traders would like to see inflation come in above 0.5%.

The key report in the U.S. is Friday’s Advance GDP report. It is expected to show the economy grew 2.5%, up from the previous 1.4%. A sold number will likely increase the chances of a December rate hike. This would be bearish for the NZD/USD and AUD/USD.

A stronger dollar should pressure the New Zealand Dollar, but losses could be limited because of reduced odds of an RBNZ rate cut in November.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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