AUD/USD and NZD/USD Fundamental Forecast – October 27, 2016

The Australian and New Zealand Dollars finished mixed on Wednesday in a relatively volatile trade. Both picked up strength early in the session amid weakness in the U.S. Dollar, which fell in reaction to nervousness over U.S. Federal Reserve monetary policy and the U.S. election.

The AUD/USD closed at .7649, up 0.0004 or +0.05%. The NZD/USD finished at .7153, down 0.0010 or -0.14%.

On Tuesday, the dollar index spiked higher, nearly reaching a nine-month high, but profit-takers took over at that point, leading to a weak close. This helped underpin the Aussie and Kiwi early in Wednesday’s session. Position-squaring ahead of Thursday’s Durable Goods report and Friday’s Advance GDP report also weighed on the dollar. There may have also been some early liquidation ahead of next week’s Fed monetary policy meeting on November 1-2 and the November 5, U.S. Non-Farm Payrolls report.

The Australian Dollar jumped to a four-day high on Wednesday after a surprisingly strong consumer inflation report. The official figures showed a 0.7 percent rise in the CPI at the end of the September quarter. This lifted the index 1.3 percent in the year to the quarter, helping to push market expectations of the next change in interest rates into 2017.

Just a few months ago in August, the Reserve Bank of Australia forecast the index to rise by 1.5 percent in the year to the December quarter. This was a strong indication that consumer prices were back on track to reach this level.

The New Zealand Dollar traded higher early in the session on the strength of the Australian consumer inflation figures. Buyers cited the strong Aussie CPI report as a reason to reduce the chances of an interest rate cut in November by the Reserve Bank of New Zealand.

By the end of the session, the combination of the stronger U.S. Dollar and renewed bets for an RBNZ rate cut on November 10, helped put the New Zealand Dollar lower for the session.

Forecast

The key report tonight is the New Zealand Trade Balance report. It is due to be released at 2145 GMT. The report is expected to show New Zealand’s merchandise trade deficit may have narrowed to $1.125 billion in September from $1.265 billion the previous month, although the timing of large one-time purchases such as aircraft could skew the monthly numbers.

At 0030 GMT, Australia is set to release its latest figures on Import Prices. The report is expected to come in at -0.7%. This would be better than the previous -1.0% read.

In the U.S. on Wednesday, durable goods for September are expected to come in at 0.1%, unchanged from the previous report. Core Durable Goods are estimated at 0.2%, better than the previous -0.2%.

Minor reports include weekly unemployment claims, and pending home sales.

Check out our real-time Economic Calendar