AUD/USD and NZD/USD Fundamental Daily Forecast – Easing as Cautious Investors Focus on Inflation Data

The risk-sensitive Australian and New Zealand Dollars are easing early Monday on worries that higher U.S. rates will choke growth. They could also lift the U.S. Dollar, which would put additional pressure on the commodity-linked currencies.

The Aussie and the Kiwi have been under pressure since the first Friday in February following the release of the much-stronger-than-expected U.S. jobs data. Fed comments have also leaned more to the hawkish side. Tuesday’s consumer inflation (CPI) report could be the final piece that solidifies at least a 25 basis point rate hike at the Fed’s March policy meeting if it comes in as expected.

At 05:00 GMT, the AUD/USD is trading .6907, down 0.0012 or -0.18% and the NZD/USD is at .6302, down 0.0007 or -0.11%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $68.45, down $0.15 or -0.22%.

Aussie, Kiwi Traders Focusing on US Consumer Inflation Data

Ahead of Tuesday’s CPI report, revisions to the previous data showed consumer prices rose in December instead of falling as previously estimated. Data for the prior two months was also revised up, with some economists said raised the risk of higher inflation readings in the months ahead.

The consumer price index edged up 0.1% in December rather than dipping 0.1% as reported last month, the Labor Department’s annual revisions of CPI data showed on Friday. Data for November was also revised higher to show the CPI increasing 0.2% instead of 0.1% as previously estimated. In October, the CPI rose 0.5%, revised up from the previously reported 0.4% increase.

Excluding the volatile food and energy components, the CPI rose 0.4% in December, instead of 0.3% as previously reported. Data for November was revised up to show the so-called Core CPI advancing 0.3% instead of 0.2% as initially estimated. October Core CPI data was unrevised.

Separately on Friday, the University of Michigan surveys showed a one-year inflation outlook of 4.2%, higher than the final number in January. Fed Chair Jerome Powell has cited the Michigan survey as one of the indicators the U.S. central bank tracks.

Short-Term Outlook

Data on Tuesday is likely to show the U.S. Consumer Price Index (CPI) climbing 0.4% month-on-month in January and the Core CPI gaining 0.4% as well, according to a Reuters survey of economists. This is likely to encourage the Fed to raise its benchmark interest rate by 25-basis points in March.

The survey was, however, conducted before the revisions and updates to the seasonal adjustment factors were published. The revisions probably won’t derail the notion of disinflation, but they could be the source of volatility on Tuesday.

Higher rates could drive the U.S. Dollar higher, which would put further pressure on both the Australian and New Zealand Dollars.