AUD/USD and NZD/USD Fundamental Daily Forecast – Buyers Tentative Ahead of US GDP Report

The Australian and New Zealand Dollars are edging higher on Thursday with the Aussie within striking distance of its highest level since August 11 and the Kiwi rangebound for a third session in a row.

Both currencies are being underpinned by a dip in U.S. Treasury yields and a weaker U.S. Dollar as traders brace for a slew of U.S. economic data that could influence next week’s Federal Reserve interest rate decision.

At 06:40 GMT, the AUD/USD is trading .7119, up 0.0015 or +0.21% and the NZD/USD is at .6492, up 0.0012 or +0.19%. On Wednesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $70.09, up $0.38 or +0.55%.

The Australian Dollar is rising on greater expectations that the Reserve Bank of Australia has more to do in raising interest rates, after Wednesday’s shock data showed that Australian inflation had surged to a 33-year high last quarter.

The New Zealand Dollar is also up after rebounding from yesterday’s loss after New Zealand’s fourth quarter annual inflation came in below its central bank’s forecast.

Australia Inflation Surges Further in Q4, More Rate Hikes Loom

Australian inflation jumped to a 33-year high last quarter as the cost of travel and electricity surged, a shock result that adds to the case for the country’s central bank to raise interest rates again next month.

After the inflation news was released, Investors sharply narrowed the odds on the Reserve Bank of Australia (RBA) lifting its cash rate by a quarter point to 3.35% when it meets on Feb. 7 while spiking the AUD/USD into a 5-month high.

New Zealand Inflation Remains Elevated but Not as Bad as Central Bank Expected

New Zealand’s consumer inflation held near three-decade highs last quarter but came in below the central bank’s forecast, prompting some analysts to bet that cash rate increases over the coming months might be less aggressive than previously thought.

The news wasn’t especially bearish, however, since the RBNZ is likely to raise its Official Cash Rate by 50 basis points in February, while the Federal Reserve is expected to lift its benchmark by a relatively small 25 basis points next week.

Short-Term Outlook

On Thursday, traders will get the opportunity to react to a slew of U.S. economic reports that could have an influence on next week’s Fed policy decisions. The reports include the first look at Fourth Quarter GDP, Durable Goods and Weekly Jobless Claims.

Meanwhile, the U.S. Dollar is being pressured by recession fears and traders betting the Federal Reserve may end its interest rate hiking cycle by June.

Weak U.S. economic data will support the case for an easier Fed. This will put pressure on Treasury yields while underpinning the AUD/USD and NZD/USD.