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James Hyerczyk
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AUD/USD and NZD/USD

The Australian and New Zealand Dollars edged lower on Friday, as upbeat data helped the U.S. Dollar reverse some of its losses since Wednesday when dovish remarks by the U.S. Federal Reserve helped bring an end to its month-long rally. Meanwhile, profit-takers hit the Aussie and Kiwi as a shift in investor sentiment sent up a caution flag ahead of the weekend.

On Friday, the AUD/USD settled at .7347, down 0.0046 or -0.63% and the NZD/USD finished at .6976, down 0.0034 or -0.48%.

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U.S. Consumer Spending Surges, Personal Income Recovers, Inflation Rises at Slower Pace

U.S. consumer spending surged in June as vaccinations against COVID-19 boosted demand for travel-related services, but part of the increase reflected higher prices, with annual inflation accelerating further above the Federal Reserve’s 2% target, Reuters reported.

Though personal income barely rose last month, other data on Friday showed wage growth in the second quarter was the fastest in 13 years on an annual basis. That, together with rising household wealth and ample savings should keep consumer spending strong, though rising COVID-19 infections pose a risk.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rebounded 1.0% last month after dipping 0.1% in May, the Commerce Department said. Economists polled by Reuters had forecast consumer spending rising 0.7%, Reuters reported.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.4% in June after advancing 0.5% in May. The so-called core PCE price index was lifted by increases in prices of airline tickets, used cars as well as hotel and motel accommodation.

In the 12 months through June, the core PCE price index shot up 3.5%, the largest gain since December 1991, after rising 3.4% in May. The core PCE price index is the Federal Reserve’s preferred inflation measure for its flexible 2% target.

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Slightly Dovish or Not-So-Hawkish Fed Spikes Aussie, Kiwi Higher

The Australian and New Zealand Dollars jumped mid-week to their highest levels since July 19 and July 16, respectively after the Fed said in its latest policy decision on Wednesday that while progress had been made in terms of its economic targets, “substantial further progress” would be needed on its inflation and employment goals before it considered tightening its ultra-easy monetary policy.

Stock Market Weakness Leads to Risk-Off Session

With investors shying away from riskier assets on Friday, both the Australian and New Zealand Dollars, were down on the day. U.S. stocks fell on Friday and registered losses for the week as Amazon.com shares dropped after the company forecast lower sales growth.

Asia-Pacific stock index futures also ended a volatile week with losses across the board as investors reacted to China’s crackdown of its technology sector. The S&P/ASX 200 in Australia closed 0.33% down to 7392.60. Traders were tracking the COVID situation in Sydney, which reported a record daily rise in COVID cases Thursday despite an extended lockdown. Reuters reported that authorities have requested help from the military in enforcing the lockdown.

Short-Term Outlook

Risk sentiment, the Reserve Bank of Australia (RBA) monetary policy decisions and New Zealand’s Employment Change/Unemployment Rate reports will set the tone this week.

For a look at all of today’s economic events, check out our economic calendar.
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