AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Pressured by Quarterly CPI Miss

The Australian and New Zealand Dollars finished mixed on Monday as most investors sat on the sidelines ahead of the release of key economic data from Australia and President Trump’s first State of the Union address late Tuesday night.

The AUD/USD settled at .8085, down 0.0010 or -0.12% and the NZD/USD finished at .7331, down 0.0011 or +0.14%.

Most of the price action was fueled by a two-sided trade in the U.S. Dollar. It rose early in the session in reaction to rising U.S. Treasury yields. The 10-year U.S. Treasury Note yield pushed well above 2.70 percent, their highest since April 2014. This prompted some Australian and New Zealand Dollar investors to cut some long positions.

In economic news, U.S. national home prices continued their run higher in November, rising 6.2 percent annually on S&P CoreLogic Case-Shiller’s most broad survey, up from 6.1 percent in October. Another S&P Index of the nation’s 20 largest housing markets showed a 6.4 percent gain, higher than analysts had expected.

The Conference Board Consumer Confidence report came in at 125.4, well above the 123.2 estimate. The previous report was revised upward to 123.1.

A steep decline in the stock market and weaker commodity prices especially gold and crude oil also weighed on the Aussie and Kiwi.

Forecast

If risky assets and commodities continue to fall then the Australian and New Zealand Dollars are likely to be the first two causalities on the currencies list.

Just as the Aussie and Kiwi benefited more than most from improved sentiment towards the global economy over the past month, any subsequent reversal in sentiment in the period ahead could see the Aussie and Kiwi get hit hard.

Early Wednesday, the Australian Dollar is trading lower in response to weaker-than-expected quarterly consumer inflation data.

Australia’s December quarterly consumer price inflation (CPI) report came in slightly below expectations, lowering any near-term possibility of an interest rate increase from the Reserve Bank of Australia (RBA).

According to the Australian Bureau of Statistics (ABS), headline CPI rose by 0.6% during the quarter, missing expectations for an increase of 0.7%. It saw the annual rate lift to 1.9%, above the 1.8% level of the September quarter but below forecasts for an acceleration to 2.0%.

It was the ninth consecutive report that the annual underlying CPI rate came in below the RBA’s 2-3% inflation target.

The Australian Dollar fell following the release of the report, indicating that traders now see a smaller chance that the RBA will lift rates this year. Australian 3-year government bond futures reflect that view, strengthening as much as 8 ticks following the report’s release.