AUD/USD and NZD/USD Fundamental Daily Forecast – Lower PPI Could Trigger Wicked Short-Covering Rally

Traders will be watching the PPI data because it needs to justify the surge in Treasury yields. Lower than expected PPI could drive Treasury yields lower. This would give the AUD/USD and NZD/USD a strong boost.
James Hyerczyk
AUD/USD and NZD/USD
AUD/USD and NZD/USD

The Australian and New Zealand Dollars are trading higher early Wednesday in reaction to a dip in U.S. Treasury yields ahead of key U.S. producer inflation data later today. The Aussie is also getting a boost from better-than-expected consumer confidence data.

At 0427 GMT, the AUD/USD is trading .7117, up 0.0014 or +0.20% and the NZD/USD is at .6484, up 0.0013 or +0.20%.

Australian consumer sentiment ticked slightly higher in October, even as the number of negative factors including falling house prices and rising petroleum prices weighed on confidence.

The Westpac Melbourne Institute Index of Consumer Sentiment rebounded 1 percent to 101.50 and remains above 100 points, a sign that optimists still outnumber the pessimists, with positive economic factors likely contributing to the more positive sentiment.

Westpac chief economist Bill Evans said, “This month’s small gain follows a 5.2 percent fall through August and September.”

“During that period the boost from the tax cuts announced in the May budget had faded while the leadership change; mortgage rate increases; declining house prices and rising petroleum prices were weighing on confidence.”

Mr. Evans said despite several negative factors impacting the index’s performance, strong economic factors were keeping consumer sentiment stable.

“It is encouraging that these negatives seem to have, at least for the time being, run their course,” he said. “Several positives have likely helped stabilize the Index, including strong economic growth, a solid labor market and ongoing recoveries in the previously weak mining states.”

The index also showed consumers believe there is little optimism in the housing market and that prices are likely to keep falling.

Finally, Mr. Evans said the complicated outlook for consumer spending meant the Reserve Bank was unlikely to raise rates before 2020.

Forecast

Today’s U.S. Producer Price Index (PPI) report is expected to move the AUD/USD and NZD/USD. It is expected to show a monthly increase of 0.2%, up from the previously reported -0.1%. Core PPI is also expected to show a rise of 0.2%, also up from -0.1%.

Final Wholesale Inventories are estimated to have risen 0.8%. The Treasury also holds a 10-year auction today. Additionally, the Treasury could release its Currency Report, in which it is expected to name currency manipulators.

Traders will be watching the PPI data because it needs to justify the surge in Treasury yields. Lower than expected PPI could drive Treasury yields lower. This would give the AUD/USD and NZD/USD a strong boost.

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