AUD/USD and NZD/USD Fundamental Daily Forecast – Price Action Suggests Investor Indecision Ahead of U.S. Producer Inflation Report

The Australian and New Zealand Dollars are posting small losses early Wednesday, while trading inside yesterday’s range. This suggests investor indecision or impending volatility.

It could also mean that Australian Dollar investors are squaring positions ahead of Thursday’s employment report. Traders could also be waiting for the other shoe to drop as both the Aussie and Kiwi hover precariously above multi-year lows. This move will likely be fueled by an escalation of the trade dispute between the United States and China.

At 0754 GMT, the AUD/USD is trading .7115, down 0.0005 or -0.08% and the NZD/USD is at .6515, down 0.0011 or -0.15%.

Notice there has been no mention of domestic data. This is because even bullish economic news from Australia or New Zealand would be unable to dig these two bearish currencies out of their respective holes. If we do see a rally, it will be fueled by short-covering and position-squaring and designed to create another shorting opportunity.

Australia and New Zealand Economic Data

There was nothing major out of Australia or New Zealand the past two days that could have swayed investor sentiment. In Australia, Westpac Consumer Sentiment fell 3.0% from -2.3%.

U.S. Economic Data

In economic news on Tuesday, the National Federation of Independent Business (NFIB) reported that small business optimism jumped to a record high last month, boosted by lower taxes and looser regulations. The report showed its index climbing to 108.8, up from 107.9. Economists had forecast a move to 108.1.

Final Wholesale Inventories posted a 0.6% gain. This was a positive because it came in lower than the 0.7% estimate and previous month.

The JOLTS Job Openings report jumped to 6.94 Million. The previous month was revised upward to 6.82 Million. Investors were looking for a reading of 6.68 Million. U.S. job openings surged to a record high in July and more Americans voluntarily quit their jobs, pointing to sustained labor market strength and confidence that could soon spur faster wage growth.

Widening Interest Rate Differential

Investors are also reacting to the widening of the spread between U.S. Government bonds and Australian and New Zealand Government bonds. This is helping to make the U.S. Dollar a more attractive investment.

The highlight of Tuesday’s session was another jump in the yield on the benchmark U.S. two-year note, which hit its highest level since 2008 amid signs of a stronger economy and a slew of inflation data later this week.

The two-year yield hit 2.744 percent for the first time since July 2008. The yield on the benchmark 10-year Treasury note was higher at 2.974 percent, while the yield on the 30-year Treasury bond was up at 3.117 percent.

Forecast

Aussie and Kiwi traders are being held in check early Wednesday by the U.S. economic data, lingering global trade issues and Thursday’s Australian employment data.

Today’s U.S. economic events could generate some volatility. At 1230 GMT, the Producer Price Index report is expected to show an increase of 0.2%. Core PPI is expected to have risen 0.2%. FOMC Member Brainard is scheduled to speak at 1645 GMT and the Fed will release its Beige Book at 1800 GMT.

Strong PPI data will cement a September Fed rate hike and should raise the chances of a December rate increase. This could put pressure on the Aussie and Kiwi.

Investors are also watching the events involving the U.S. and China. President Trump is tap-dancing around imposing tariffs on $267 billion of Chinese imports into America. In the meantime, China will be making a request to the World Trade Organization (WTO) to impose sanctions on the U.S. On Tuesday, China said it would approach the WTO next week to request permission to impose sanctions on the U.S. The meeting is scheduled to take place on September 21.