AUD/USD and NZD/USD Fundamental Weekly Forecast – U.S. Consumer Inflation, NZ GDP Will Drive Price Action

The Australian and New Zealand Dollars finished higher last week as investors digested the impact of President Trump’s proposed tariffs on steel and aluminum. Traders also reacted to an easing of geopolitical events and a stronger-than-expected U.S. Non-Farm Payrolls report.

The AUD/USD settled at .7846, up 0.0085 or +1.09% and the NZD/USD finished the week at .7279, up 0.0041 or +0.57%.

Australian Dollar traders had the opportunity to react to reports on the Current Account, Retail Sales, Quarterly GDP and Trade Balance. Also the Reserve Bank of Australia’s latest interest rate decision and monetary policy statement as well as a speech from RBA Governor Lowe.

The Current Account came in lower than expected at -14.0 Billion. Retail Sales were also lower than forecast at 0.1%.

Quarterly GDP missed the mark at 0.4%, falling short of the 0.5% estimate. However, the previous read was increased to 0.7%.

Finally, the Trade Balance surprised traders by coming in at 1.06 Billion, much higher than the 0.21 Billion forecast. The previous month’s report was also revised higher to -1.15 Billion.

The Reserve Bank of Australia left interest rates unchanged as its increasing policy divergence from global peers continued to keep a lid on the Australian Dollar. However, a lower currency would help aid economic growth and inflation.

Reserve Bank of Australia (RBA) Governor Philip Lowe and his monetary policy board kept the cash rate at a record-low 1.5 percent, in line with market and economists’ expectations.

According to the monetary policy statement, the RBA is trying to prolong a hiring boom and soak up spare capacity in the labor market to generate faster wages growth.

“The low level of interest rates is continuing to support the Australian economy,” Lowe said in a statement announcing the decision. “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”

Forecast

Late in the session on Friday, the AUD/USD spiked to the upside in reaction to the news that U.S. President Donald Trump will sign an executive order exempting Australia from new steel and aluminum tariffs.

Australian Prime Minister Malcolm Turnbull said of the event, “Great discussion today on security and trade. Australia/U.S. trade is fair and reciprocal & each of our nations has no closer rally. Thank you for confirming new tariffs won’t have to be imposed on Australian steel & aluminum – good for jobs in Australia and in U.S.”

We could see a follow-through to the upside early this week.

Early in the week, Reserve Bank of New Zealand Governor Spencer is scheduled. He may rally the troops enough to create some volatility, but he is not expected to say anything that will change the trend. Most investors will be focused on U.S. Consumer Inflation data, Retail Sales and New Zealand GDP, due to be released later in the week.

U.S. Consumer Inflation will be a closely watched report because it will likely influence next week’s Federal Open Market Committee Economic projections. Traders are looking for CPI to come in at 0.2%, down from the previously reported 0.5%. Core CPI is also expected to come in at 0.2%, down slightly from 0.3%.

U.S. Producer Inflation is expected to rise slightly by 0.1%, down from the previously reported 0.4%.

U.S. Retail Sales are expected to make a recovery from last month’s disappointing -0.3% performance with a reading of 0.3%.

Finally, Building Permits are expected to come in at 1.33M, down from 1.38M. Rising mortgage rates may weigh on this report.

With Average Hourly Earnings coming in lower than expected in last week’s Non-Farm Payrolls report for February, traders will be glued to the CPI number. A weak performance will likely mean the Fed will only raise rates a total of three times in 2018, instead of the four that some traders have been counting on.

The AUD/USD and NZD/USD will likely rise if the CPI number comes in lower than expected. Most of the selling will be in the U.S. Dollar.