AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Volatility Down Ahead of Wednesday’s Labor Market Reports

The Australian and New Zealand Dollars are trading mixed shortly before the U.S. opening. Investors showed little response to outside news from China and Japan. Domestic reports may have influenced the price action but volume remained light ahead of the start of the Fed’s two-day meeting and additional domestic news later in the week.

At 1011 GMT, the AUD/USD is trading .7418, up 0.0011 or +0.13% and the NZD/USD is at .6815, down 0.0007 or -0.11%.

Overnight, China reported that factory activity was slightly lower than expected in July, with the official manufacturing Purchasing Manager’s Index (PMI) coming in at 51.2. The Chinese manufacturing PMI had been forecast to fall to 51.3 in July from 51.5 in June, according to a poll of economists by Reuters. China’s official services PMI also fell in July. The report showed a reading of 54.0 from 55.0 in June.

In Japan, the Bank of Japan kept its policy steady as widely expected. The major news coming out of the central bank’s decision is that it would make its policy framework more flexible for the long-term yield target.

Australian Building Approvals jumped 6.4% versus a 1.1% estimate. However, the previous month was revised lower by 2.5%. Private Sector Credit hit the estimate of 0.3%, slightly better than last month’s 0.2%.

In New Zealand, Building Consents fell 7.6% versus a 6.9% previous report. ANZ Business Confidence was -44.9. Last month the report was -39.0.

Forecast

On Tuesday, investors will get the opportunity to react to a slew of U.S. economic reports.

The most important report is the Fed’s preferred inflation gauge – the personal consumption expenditures price index – or Core PCE Price Index. Investors expect the PCE data to show an increase of 2% year-on-year, the same as in May. Monthly, look for a 0.1% rise, versus 0.2% the previous month.

A larger than expected increase will raise the odds of additional Fed rate hikes this year, which should support the dollar and pressure the Aussie and Kiwi.

Other key reports include Personal Spending and Personal Income which are expected to increase 0.4%.

The S&P/CS Composite-20 HPI is expected to increase 6.4% and Chicago PMI is expected to come in at 61.9, down from 64.1.

The last major report of the day at 1400 GMT is the Conference Board’s Consumer Confidence. It is expected to come in slightly better at 126.5, up from 126.4. Traders will be looking to see if consumer concerns over the on-going trade dispute between the US and China show up in this report.

The New Zealand Dollar trade could be subdued throughout the session on Tuesday as investors prepare for the release of the major Employment Change, Unemployment Rate and Labor Cost Index reports at 2245 GMT.