AUD/USD and NZD/USD Fundamental Daily Forecast – Weaker Ahead of US CPI Report

The Australian and New Zealand Dollars are edging lower on Tuesday following the release of key economic reports that could have a major influence on their respective central bank interest rate decisions. Traders are also being cautious ahead of the release of the U.S. Consumer Price Index (CPI) report.

At 03:48 GMT, the AUD/USD is trading .6963, down 0.0003 or -0.04% and the NZD/USD is at .6342, down 0.0017 or -0.27%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $68.45, down $0.05 or -0.07%.

The Aussie is down but trading better than the Kiwi after a surprisingly upbeat survey on business conditions which showed sales hit historically high levels in January, contradicting talk of a slowdown. The Kiwi fell after a survey showed a drop in inflation expectations.

Australia Business Activity Rebounds in Jan on Strong Sales – NAB

Australian business conditions rebounded sharply in January after three months of slowdown while cost pressures picked up again, a surprising sign of strength that could add to the case for yet more rises in interest rates, Reuters said.

Tuesday’s survey from National Australia Bank Ltd (NAB) showed its index of business conditions had risen 5 points to +18 in January, well above its long-run average.

The measure of confidence climbed 6 points to +6, led by gains in the wholesale and the transport and utilities industries.

“The improvement in confidence suggests firms have a more optimistic outlook as concerns about global growth prospects ease, while strong conditions are also providing evidence that the economy is more resilient  than previously expected,” said Alan Oster, NAB’s chief economist.

New Zealand Inflation Expected to Slow Over Next Two Years – RBNZ Survey

New Zealand’s high inflation rate is expected to slow sharply over the next two years, a Reserve Bank of New Zealand (RBNZ) survey showed on Tuesday, a reassuring sign for policymakers that expectations are not becoming un-anchored, Reuters said.

Two-year inflation expectations – seen as the time frame when RBNZ policy action will filter through to prices – is seen falling to 3.30% from 3.62% in the previous survey in December, RBNZ’s quarterly survey showed.

The survey showed business managers forecast annual inflation to average 5.11% over the coming year versus 5.08%.

Short-Term Outlook

Domestically, the NAB report likely means the Reserve Bank of Australia (RBA) will raise rates at its next meeting. The RBNZ inflation survey suggests the central bank doesn’t have to be too aggressive with its future rate hikes.

Shifting gears, all market eyes will be on the release of the Labor Department’s consumer price index (CPI), a widely followed inflation gauge, at 13:30 GMT.

Economists are expecting that the CPI will show a 0.4% increase in January, which would translate into 6.2% annual growth. However, there’s some indication the number could be even higher.

The Federal Reserve is determined to keep fighting inflation, so the report could harden their position.

A stronger than expected U.S. consumer inflation reading could tank the AUD/USD and NZD/USD.