AUD/USD and NZD/USD Fundamental Daily Forecast – Weak China PMI, Strong U.S. ADP Report Weigh on Aussie, Kiwi

The Australian and New Zealand Dollars were under pressure on Wednesday. Solid U.S. economic data and expectations of rising interest rates fueled the selling. The Aussie was also pressured by weaker-than-expected domestic data. Both currencies were further pressured by weak economic data from China.

In Australia, the core inflation rate fell below the Reserve Bank’s target range of 2 to 3 percent. The consumer price index rose 0.4 percent over the September quarter, or 1.9 percent for the year. That reading was weaker than the 2.1 percent recorded previously. Analysts had estimated the quarterly CPI to have risen 0.5 percent. Trimmed Mean CPI also came in at 0.4 percent, matching the estimate and the previous reading.

In New Zealand, ANZ Business Confidence improved slightly, coming in at -37.1, up from -38.3. Despite the slight rise in business sentiment, businesses continue to remain pessimistic. Additionally, a net 7.4 percent of respondents expected their own businesses to grow in the next 12 months, from 7.8 percent last month.

The weak business sentiment data raised expectations of a potential rate cut by the Reserve Bank of New Zealand. This was the primary reason behind Wednesday’s selling pressure.

Both Aussie and Kiwi traders also expressed concerns about a slowdown in the country’s largest trading partner after China released a report showing soft manufacturing data.

China’s official Purchasing Managers’ Index fell to 50.2 in October, the lowest since July 2016 and down from 50.8 in September. “The latest survey data point towards a further loss of momentum at the start of Q4,” Capital Economics said in a note, adding that it was below expectations.

Xinhua, China’s state-run press agency, quoted senior statistician Zhao Qinghe saying the manufacturing supply and demand in October experienced “fluctuations due to factors including the National Day holiday and a complicated external environment.”

In the U.S., the ADP Non-Farm Employment Change report showed private payrolls rose by 227,000 in October. This was better than the expected growth of 189.000 after September’s 218,000, was knocked lower from 230,000.

Additionally, the U.S. Labor Department, said the employment cost index rose 0.8 percent for the third quarter, beating the estimate of 0.7 percent from economists surveyed by Refinitiv.

Both reports helped drive U.S. Treasury yields higher while solidifying the chances of a Fed rate hike in December. This helped make the U.S. Dollar a more attractive investment.

Forecast

The weak Australian consumer inflation data likely means the Reserve Bank of Australia is likely to continue to hold rates at current levels. It is not expected to raise rates until 2020. Low business confidence in New Zealand is raising concerns that the Reserve Bank of New Zealand will cut interest rates. Weak data from China will continue to slow economic growth in both Australia and New Zealand.

At the same time, the U.S. labor market continues to tighten, keeping the Fed on its path to raise rates. Essentially, the divergence between the monetary policies of the hawkish U.S. Federal Reserve and the dovish RBA and RBNZ should continue to make the U.S. Dollar a more attractive asset, putting pressure on the AUD/USD and NZD/USD.