AUD/USD and NZD/USD Fundamental Weekly Forecast – New Zealand CPI, Australian Jobs Data Set the Tone

The Australian and New Zealand Dollars closed lower last week after hitting 2-1/2 year lows. Traders said concerns about China’s economy, rising geopolitical tensions and a broad risk-off mood were the catalysts behind the selling pressure early in the week.

Later in the week, the selling pressure was fueled by higher-than-expected U.S. consumer inflation data and the nearly 100% pricing of another 75-basis point rate hike by the U.S. Federal Reserve at its November 1-2 monetary policy meeting.

Last week, the AUD/USD settled at .6201, down 0.0166 or -2.68% and the NZD/USD finished at .5559, down 0.0045 or -0.81%. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) closed at $61.39, down $1.60 or -2.54%.

Late in the week, the Aussie and Kiwi stabilized as hopes for a respite in the crisis wracking the UK gilt market boosted risk sentiment globally and squeezed speculators out of crowded short positions.

There were no major reports out of Australia or New Zealand last week with most traders keenly tuned to the U.S. inflation news and Fed rate hike expectations.

This week is another story, however.

New Zealand Inflation, Australia Labor Market Data on Tap

On Monday at 21:45 GMT, New Zealand is expected to release data on quarterly CPI. It is expected to dip slightly from 1.7% to 1.5%.

On Tuesday at 00:30 GMT, the Reserve Bank of Australia (RBA) will release the minutes of its October monetary policy meeting.

Also on Tuesday at 02:00 GMT, China is scheduled to release a slew of economic reports including the major Gross Domestic Product report. It is expected to show the economy grew 3.4%, up from 0.4%.

Early Thursday at 00:30 GMT, Australia will release two reports on the strength of the labor market. The Employment Change report is expected to show the economy added 25.0K new jobs in September, down from the 33.5K increase in August. The second report on the Unemployment Rate is expected to show a steady reading at 3.5%.

Weekly Outlook

While the economic reports could trigger volatile intraday responses following their releases, we are not expecting any trend-changing reactions.

Those traders following risk sentiment are going to be eyeing the outcome of the potential powder keg in the U.K. gilt market, while those zeroed in on central bank policy are going to be monitoring the economic data.

Earlier in October, the Reserve Bank of New Zealand (RBNZ) hiked its Official Cash Rate by half a point to 3.5%, while the Reserve Bank of Australia (RBA) surprised by only delivering a quarter-point rise to 2.6%.

The slowdown in hikes is a stark contrast to the Federal Reserve. Financial market traders are now betting it will raise rates by 75 basis points in both November and December following a red-hot reading on U.S. core inflation.

Traders Focusing on Central Banks’ Divergence with Fed

If the RBA and the RBNZ continue to raise rates at a slower pace than the Fed, then look for the AUD/USD and NZD/USD to continue to slide.

If the rate hikes by the RBNZ fail to drive CPI lower then policymakers may be forced to make another aggressive rate hike at its next meeting. This could provide temporary support for the Kiwi on Monday/Tuesday.

If the rate hikes by the RBA fail to drive CPI lower then officials are likely to extend their tightening cycle from February to March 2023 and raise their terminal rate.

As far as the jobs reports are concerned, like the Fed, the RBA would like to see a slowdown in employment and a slight rise in unemployment. If the data comes in too hot on Thursday then look for traders to increase the chances of a bigger-than-expected rate hike by the RBA at its next meeting. This could provide temporary support for the AUD/USD.