AUD/USD and NZD/USD Fundamental Weekly Forecast – Australian Dollar: Trump Speech, Consumer Inflation Key Market Movers

Last week, the Australian Dollar surged against the U.S. Dollar, taking out the September 20 main top at .8102 and the September 8 main top at .8124 before stopping short of its May 4, 2015 main top at .8162 and a long-term 50% level at .8165. There wasn’t any major economic news from Australia last week. All of the price action was driven by a steep plunge in the U.S. Dollar. Higher commodity prices as a result of the weaker Greenback have also added further impetus to the Aussie strength.

The AUD/USD settled at .8108, up 0.0126 or +1.58%.

The New Zealand Dollar finished the week sharply higher despite some strong mid-week volatility, triggered by weaker-than-expected quarterly inflation data. The rally was fueled by the weaker U.S. Dollar.

The NZD/USD settled at .7355, up 0.0082 or 1.12%.

Last week, the New Zealand government reported that growth in its 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 were looking for a 0.4% increase from the previous quarter, and remain steady at 1.9% compared with the previous year.

U.S. Dollar

On January 24, U.S. Treasury Secretary Steven Mnuchin triggered a steep break in the Greenback when he said that a weak dollar was good for U.S. trade. But when given the opportunity to clarify his comments at the World Economic Forum early Thursday, Mnuchin did not latch on to the strong U.S. dollar rhetoric used by past Treasury secretaries.

Mnuchin said during a CNBC-moderated panel that the dollar can fluctuate and he is not concerned by the current weakness, but “in the longer term” believes in the “strength of the dollar.”

U.S. President Donald Trump on January 25 helped turn the dollar around with hawkish comments, saying he wanted a “strong dollar”, contradicting earlier comments made by Treasury Secretary Steven Mnuchin. Trump told CNBC in an interview in Davos, Switzerland, that he ultimately wants the dollar to be strong.

This statement was enough to spook the longs and encourage aggressive profit-taking initially, however, the move didn’t last with the Aussie and Kiwi making  full recoveries and moving to new highs for the week on Friday.

Forecast

The price action in the Aussie and Kiwi this week will once again be controlled by the direction of the U.S. Dollar. The dollar will be largely influenced by President Trump’s State of the Union speech on Tuesday, January 30 at 9:00 Eastern (0200 GMT Wednesday).

Traders should expect Trump to talk about the positives in the economy. This may trigger a strong recovery in the dollar, at least over the short-run. This would be bearish for the Australia and New Zealand Dollars.

The Fed will issue its monetary policy statement on January 31. The central bank is not expected to raise interest rates. Traders will be looking for the Fed’s assessment of the economy, inflation and its outlook for future rate hikes.

Finally, investors will also get the opportunity to react to the latest data on employment in Friday’s U.S. Non-Farm Payrolls report. The headline number is expected to show the economy added 184K jobs in January, up from 148K in December. Average Hourly Earnings are expected to increase 0.3% and the Unemployment Rate is expected to remain at 4.1%.

In Australia, the major report is quarterly CPI at 0030 GMT on Wednesday. Quarterly consumer inflation is expected to come in at 0.7%, up slightly from the previously reported 0.6%. Trimmed Mean CPI is expected to rise 0.5%.