AUD/USD and NZD/USD Fundamental Daily Forecast – Limited Movement on Positioning Ahead of US CPI Report

The Australian and New Zealand Dollars are trading slightly lower early Monday as investors continue to assess the impact of Friday’s powerfully strong U.S. Non-Farm Payrolls report on Fed policy. The stunning U.S. payrolls report pushed back against talk of recession but also bolstered the case for more super-sized rate hikes.

Traders are also being cautious as they braced for a U.S. Inflation report later this week that could force another 75 basis-point rate hike. Meanwhile, some investors are monitoring U.S./China relations, which could escalate and lead to heightened volatility for riskier assets.

At 01:13 GMT, the AUD/USD is trading .6910, down 0.0003 or -0.04% and the NZD/USD is at .6236, down 0.0007 or -0.12%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $68.45, down $0.59 or -0.85%.

Friday Recap

The Aussie and the Kiwi closed sharply lower against the U.S. Dollar on Friday and for the week, with most of the selling pressure fueled by Friday’s stronger-than-expected U.S. labor market report.

The report showed employment in the U.S. jumped by much more than expected in the month of July, leading to calls for an aggressive move by the Fed at its September 21 policy meeting.

Not only did the number of new jobs come in more than twice that expected, but the unemployment rate fell to pre-pandemic lows. Average Hourly Wages also rose sharply, which indicates inflation is still running high, and may be the key reason why the Fed is strongly expected to attack inflation aggressively at its next meeting.

Domestic Reports in Focus

There are no major reports out of Australia and New Zealand this week, but traders will still get the opportunity to react to economic surveys including Westpac Consumer Sentiment, NAB Business Confidence in Australia, and the BusinessNZ Manufacturing Index in New Zealand.

Daily Forecast

The schedule is a little light late Sunday/early Monday with trader given the opportunity to react to a report on New Zealand Inflation Expectations. Last month, inflation expectations increased slightly from 3.27% to 3.29%.

There are no U.S. reports on Monday. Nonetheless, most of the major players are expected to remain on the sidelines until Wednesday’s U.S. Consumer Price Index (CPI) report and Core CPI data.

U.S. CPI is expected to have risen by 0.2%, which would be down from the previous month’s 1.3%. Core CPI is expected to have increased by 0.5%, which is only slightly lower than the previously reported 0.7% jump.

The figures suggest U.S. inflation may have peaked, especially with gasoline prices falling during July. However, this doesn’t mean the Fed is going to lighten up on its quest to drive consumer inflation down to its mandated 2.0%.

With 44 days to go before the Fed’s rate decision on September 21, traders are pricing in a 72.5% chance of a 75 basis point rate hike by policymakers. Since the Fed is expected to raise rates at a faster pace than the Reserve Bank of Australia (RBA), the AUD/USD could weaken further. At a minimum, gains are likely to be capped.