AUD/USD and NZD/USD Fundamental Daily Forecast – New Zealand Short-Term Yields Climbing Faster than US Rates

The Australian and New Zealand Dollars are trading sharply higher early Tuesday, supported by a weaker U.S. Dollar which was knocked lower by weak U.S. factory data on Monday and fresh bets of faster normalization of monetary policy in other countries.

Over the past week the Aussie and Kiwi have trended higher against the U.S. Dollar amid speculation investors have already priced in a tapering of Federal Reserve stimulus as early as next month along with a first interest-rate increase next year.

Increased demand for riskier assets has also boosted the commodity-linked currencies while a recovery in risk sentiment weighed on the safe-haven appeal of the U.S. currency.

At 05:58 GMT, the AUD/USD is trading .7464, up 0.0052 or +0.70% and the NZD/USD is at .7135, up 0.0048 or +0.68%.

US Dollar Pressured as Manufacturing Output Declines in September

The U.S. Dollar was pressured against the Australian and New Zealand Dollars on Monday after a report showed production at U.S. factories unexpectedly fell in September as motor vehicle output slumped amid an ongoing global shortage of semiconductors. Some of this pressure is carrying over to Tuesday’s trading session, helping to underpin the Aussie and Kiwi.

Kiwi Boosted as New Zealand Inflation Surges at Fastest Pace in Over a Decade

In New Zealand, bets for faster policy normalization were stoked on Monday by data showing the fastest consumer-price inflation in more than a decade. Consequently, the NZD/USD is being boosted by investors increasing bets the Reserve Bank (RBNZ) would raise rates faster than the U.S. Federal Reserve.

The rise in inflation is helping short-term bond yields in New Zealand climb comparatively more than those in the U.S., pressuring the dollar and making the New Zealand Dollar a more attractive currency.

New Zealand’s Consumer Price Index (CPI) rose 2.2% in the third quarter, beating expectations and surging at the fastest pace in over a decade driven by housing-related costs and other supply constraints.

CPI rose 2.2% in the quarter-ending September 30 from a rise of 1.3% in the second quarter, the biggest quarterly movement since a 2.3% rise in the December 2010 quarter, Statistics New Zealand said in a statement.

Annual inflation surged 4.9% compared to a rise of 3.3% in the previous quarter, also the biggest annual movement in more than a decade.

The data beat analysts’ expectations in a Reuters poll and forecasts of the Reserve Bank of New Zealand (RBNZ), both of which put the quarterly inflation rise at 1.4%, lifting annual inflation to 4.1%.