AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured by Contagion Fears Ahead of US Inflation Data

The Australian and New Zealand Dollars are under pressure early Wednesday after suffering a setback the previous session. Fears of potential contagion from China’s property market woes also fueled the search for safer assets, which weighed on the risk sensitive Aussie and Kiwi. The trade was also influenced by China inflation data and a report on Australian consumer sentiment. All of this ahead of a key U.S. consumer inflation report.

At 07:02 GMT, the AUD/USD is trading .7359, down 0.0020 or -0.28% and the NZD/USD is at .7103, down 0.0029 or -0.41%.

Contagion Fears: China’s Property Implosion has the Aussie, Kiwi on Edge

The Aussie and Kiwi Dollars are being pressured by fear of contagion over the implosions within China’s giant property development sector.

China’s property sector suffered a fresh pounding on Tuesday as Kaisa Group made a desperate plea for help, Reuters reported. Beijing-backed firms began to wobble, leading the U.S. Federal Reserve to send its first direct warning about potential global damage.

Troubles in China’s vast real estate sector could spill over to the global economy – including the United States, according to the Federal Reserve.

The U.S. central bank warned Monday that China’s ongoing property woes could evaluate “financial stresses in China, [which] could further strain global financial markets and negatively affect the United States.”

Though “Chinese authorities have introduced measures to cool down property markets,” there is a risk that “financial vulnerabilities will continue to rise,” the Fed noted.

China Producer Price Inflation Hits 26-Year High

The Aussie and Kiwi were also pressured by the news that China’s October factory gate prices rose at the fastest pace since 1995, beating forecasts and further squeezing profit margins for producers grappling with soaring coal prices and other commodity costs due to the power crunch.

The producer price index (PPI) climbed 13.5% from a year earlier, faster than the 10.7% rise in September, the National Bureau of Statistics (NBS) said in a statement. Analysts polled by Reuters had forecast PPI growth would quicken to 12.4%.

Australian Consumer Sentiment Edges Up in November, Jobs Outlook Brightens

A measure of Australian consumer sentiment inched higher in November as optimism on the economy just outweighed worries about personal finances, while the outlook on employment took a marked turn for the better.

The Westpac-Melbourne Institute Index of Consumer Sentiment released on Wednesday added 0.6% in November from October, when it dipped 1.5%.

Daily Forecast

Last month’s consumer price index, which is more closely monitored by investors as a more direct measure of inflation, will be released at 13:30 GMT on Wednesday. CPI is expected to show a 0.6% jump compared to the prior month.

Inflation readings, along with the recovery in the labor market, are being watched by the Federal Reserve as it starts to pare back emergency economic stimulus measures. The central bank announced last week that it would start this process by reducing its bond-buying program by the end of November.

Raising interest rates would be the next step in the Fed’s normalization of monetary policy.

Although the Fed is still a long ways away from considering raising interest rates, a stronger than expected CPI report could help the AUD/USD and NZD/USD extend their losses.

A weaker number or data that matches expectations could trigger a short-covering rally but contagion fears could help limit those gains.