AUD/USD and NZD/USD Fundamental Forecast – October 25, 2016

The Australian Dollar posted an inside move on Monday as investors prepared for Wednesday’s release of the latest quarterly Consumer Inflation and Trimmed Mean CPI reports. The chart pattern indicates investor indecision and impending volatility. The AUD/USD closed at .7611, up 0.0007 or 0.09%.

Also influencing the Aussie on Monday were oversold technical conditions as well as a solid support area on the daily chart at .7593 to .7587. The Forex pair was under pressure the latter half of last week after the release of disappointing employment data. Today’s price action also suggests the market was underpinned by greater demand for risky assets based on the performances of the global equity markets.

The New Zealand Dollar was under pressure on Monday as investors continued to position themselves ahead of the next Reserve Bank of New Zealand policy committee meeting on November 10. The price action suggests investors are increasing their bets for a rate cut. Monday was a bank holiday so volume was limited. The NZD/USD finished the session at .7137, down 0.0022 or -0.31%.

 

Forecast

The direction of the Australian and New Zealand Dollars on Tuesday will likely be determined primarily by the U.S. Dollar. At this time, the Greenback is being underpinned by rising expectations for a Fed rate hike in December, which now stand at about 74%, based on the Fed Funds indicator. However, Monday’s price action by the dollar index suggests its current rally may be slowing because of technically overbought conditions and position-squaring ahead of Wednesday’s U.S. Durable Goods Report and Friday’s Advance GDP report.

The major concern this week for Australian Dollar traders is Wednesday’s Quarterly Consumer Inflation reports. This report is important because bullish Australian Dollar investors are hoping the report is strong enough for the RBA to start an extended period of neutrality.

Concerns were raised last week about returning to an extended period of neutrality after the release of disappointing Australian employment data. So a combination of the weak employment data and weaker than expected CPI data could trigger a huge sell-off by the AUD/USD on Wednesday.

NZD/USD traders are taking back about half of last week’s rally, which was fueled by better than expected CPI data. The battle taking place at this time is going on between those who feel the inflation data was strong enough to encourage the RBNZ to take a rate cut off the table, and those who feel a rate cut is still warranted.