AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Firms as Investor Bet on ‘Hot’ Consumer Inflation Data

The Australian and New Zealand Dollars are inching higher early Tuesday as traders prepare for the release of key Australian inflation data on Wednesday that could determine the near-term direction of the currencies.

The commodity-linked Aussie and Kiwi are also benefitting from the rally in commodity prices, the improvement in global investor risk sentiment, and by a rise in government debt yields.

At 05:08 GMT, the AUD/USD is trading .7515, up 0.0023 or +0.31% and the NZD/USD is at .7172, up 0.0005 or +0.07%.

Australian inflation data due on Wednesday is likely to set the tone for the next stage in a tussle between traders and a resolutely dovish central bank.

Ahead of the Australian inflation reports, traders will get the opportunity to react to a U.S. Consumer Confidence report from the Conference Board at 14:00 GMT. It is expected to come in at 108.4, below the previously reported 109.3. A lower than expected number could be bullish for the Aussie and Kiwi because it could lead to a delay in the Fed’s first rate hike.

Also on Wednesday, New Zealand will release Trade Balance data and ANZ will release its latest Business Confidence report.

All Eyes on Australian Consumer Inflation Report

While the Aussie and Kiwi hover just below recent peaks, traders are waiting to see whether Wednesday’s consumer inflation data will match last week’s red-hot reading in New Zealand that lifted yields and the currencies last week.

The Aussie Dollar is hovering just below its 200-day moving average at .7562 and the Kiwi Dollar is trading near last week’s four-month high of .7219.

Bond markets steadied after selling through last week, with strong demand at Monday’s A$1 billion ($746 million) Australian government bond auction which was more than six times oversubscribed.

Nevertheless, Australian interest rate markets remain positioned for a far more aggressive hiking path than the central bank expects and traders are closely watching inflation due out on Wednesday.

Economists polled by Reuters expect the Reserve Bank of Australia’s (RBA) preferred “trimmed mean” CPI to show a 1.8% year-on-year for the third quarter. The RBA has forecast that it would hold steady at about 1.75% through to December.

Financial market traders have priced in rate hikes beginning in just under a year’s time and some 100 basis points of tightening by the end of 2023, while the RBA does not expect to raise rates before 2024 and has played down the importance of quarterly inflation readings.

Daily Forecast

We may see some position-squaring on Tuesday ahead of the next day’s Australian inflation data. If the data comes in hotter than expected, we could see a significant jump in prices because this would justify an earlier than expected rate hike by the RBA.