AUD/USD and NZD/USD Fundamental Daily Forecast – Treasury Secretary Mnuchin Walks Back Negative Dollar Comments

The Australian and New Zealand Dollar are trading higher on Thursday. Both currencies are being supported by negative comments about the U.S. Dollar on Wednesday from Treasury Secretary Steven Mnuchin.

At 1252 GMT, the AUD/USD is trading .8073, up 0.0009 or +0.11% and the NZD/USD is at .7372, up 0.0034 or +0.46%.

Fundamentally, the U.S. Dollar plunged on Wednesday after Treasury Secretary Steven Mnuchin told the World Economic Forum in Davos that “obviously a weaker dollar is good for us as it relates to trade and opportunities”. His comments were seen as a departure from traditional U.S. currency policy.

In other news, the NZD/USD is trying to claw back losses fueled by early Thursday’s weaker-than-expected quarterly consumer inflation report. The news helped form a potentially bearish closing price reversal top.

Growth in New Zealand’s consumer prices unexpectedly slowed in the final quarter of 2017 as a sharp drop in the price of retail goods outweighed the effect of more expensive gasoline and air fares.

The consumer price index increased 0.1% from the previous quarter and 1.6% from a year earlier, Statistics New Zealand said Thursday, following a 0.5% rebound in the third quarter that brought the annual gain to 1.9% on year.

Economists and traders were looking for inflation to grow by 0.4% from the previous quarter, and remain steady at 1.9% compared with the previous year.

Forecast

The price action in both the Aussie and he Kiwi will continue to be driven by the price action and direction of the U.S. Dollar.

The New Zealand CPI data miss makes it increasingly unlikely the Reserve Bank of New Zealand will budge from its neutral stance at any time soon. The outcome leaves inflation further away from the mid-point of its 1% – 3% target range.

The RBNZ has indicated it doesn’t expect to raise interest rates until the latter half of 2019.

We’re going to watch the U.S. Dollar’s response today to fresh comments from Mnuchin. A short while ago, he said that he spends little time thinking about dollar weakness over the short-term, walking back his comments that sent the U.S. currency reeling amid fears of a trade war.

Speaking at the WEF in Davos, Mnuchin said dollar weakness in the short-term was “not a concern of mine,” before adding:  “In the longer-term, we fundamentally believe in the strength of the dollar.”

All we can predict today is volatility. We can assume that if Mnuchin’s fresh comments gain traction, this will encourage a rebound in the U.S. Dollar due to profit-taking and short-covering.

In economic news, traders will get a chance today to react to fresh U.S. Weekly Unemployment Claims, a Goods Trade Balance report, New Home Sales and the Conference Board’s Leading Index.