AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Chief Says “Speculative Mania” Surrounding Cryptocurrencies

The Australian Dollar is trading flat and the New Zealand Dollar slightly higher after giving up most of today’s earlier gains as investors await the release of U.S. consumer inflation data and the U.S. Federal Reserve’s interest rate and monetary policy decisions.

At 1007 GMT, the AUD/USD is trading .7558, up 0.0001 or +0.01% and the NZD/USD is at .6939, up 0.0007 or +0.10%.

Earlier in the session, Reserve Bank of Australia Governor Philip Lowe thinks bitcoin is mostly attractive to criminals and speculators but has acknowledged there could one day be an electronic Aussie Dollar based on similar technology.

“It is possible that the RBA might, in time, issue a new form of digital money – a variation on exchange settlement accounts – perhaps using distributed ledger technology,” Dr. Lowe said in a speech to the Australian Payment Summit in Sydney.

“The case for doing this has not yet been established but we are open to the idea.”

In other news, Westpac Consumer Sentiment rose 3.6% to 103.3 in December, up from the previous 99.7 in November.

A research analyst at Westpac said, “This is a surprisingly strong result and confirms the lift we have seen in the Index over the last three months. The average reading for the Index in the December quarter is 5% above the average for the September quarter when we saw a disturbing slump in consumer spending. The result is supportive of the view that consumer confidence may have bottomed out during that September quarter.”

“In turn, growth in consumer spending is likely to have also bottomed out in the September quarter. However, with ongoing weak income growth; a low savings rate; and high debt levels we cannot be confident that consumers have the capacity to sharply lift spending despite higher confidence.”

The New Zealand Dollar continued to get support from the appointment of Adriann Orr as the new governor of the Reserve Bank. This news lifted some of the uncertainty over the direction of central bank monetary policy. Traders are also reacting to the first budget from Prime Minister Jacinda Adern.

Later today, Aussie and Kiwi investors will get the opportunity to react to U.S. consumer inflation data and the Fed’s interest rate decision and monetary policy decision.

The U.S. Federal Reserve has raised its benchmark interest rate two times so far this year and analysts say a third rate hike is almost certain, by 25 basis points to between 1.25 and 1.50 percent, at the conclusion of its two-day meeting at 1900 GMT.

With the rate hike a given, AUD/USD and NZD/USD traders will be primarily focused on the U.S. central bank’s statement for clues on any further rate increases in 2018. Earlier in the year, the Fed forecast as many as three rate hikes, but concerns over sluggish inflation has led some Fed officials to lower their projections to only two rate hikes. A cut in the number of rate hikes in 2018 could trigger further a sell-off by the U.S. Dollar.

At 1330 GMT, investors will get the opportunity to react to the latest U.S. consumer inflation data. It is expected to show an increase of 0.4%. Core CPI is expected to rise 0.2%. On Tuesday, the U.S. reported that producer price data for November rose 0.4 percent. This met expectations. From a year ago, the producer price index shot up 3.1 percent, the biggest gain since January 2012 and followed a 2.8 percent rise in October.

If U.S. consumer price data shows a similar uptick, that could fuel expectations of faster Fed rate hikes in 2018. The AUD/USD and NZD/USD could plunge on this news. A lower number will be bullish for the Forex pairs.