AUD/USD and NZD/USD Fundamental Daily Forecast – AUD/USD Continues to Tumble After CPI Misses Mark

The AUD/USD is trading at its lowest level since July 13 shortly before the U.S. opening in reaction to a weaker-than-expected quarterly consumer inflation report. The downside momentum is strong and the chart pattern suggests the Forex pair can accelerate further to the downside since the next major support doesn’t come in until .7571. On the upside, new resistance is .7733 and .7782.

According to the Australian Bureau of Statistics (ABS), quarterly consumer inflation (CPI) came in at 0.6%, well below the 0.8% estimate. Trimmed Mean CPI was also lower-than-expected at 0.4%, missing the 0.5% forecast.

The news triggered a wave of selling because it likely means the Reserve Bank of Australia will scrap any plans to raise rates over the short-run. Traders who had bet the RBA would be in line for a rate hike because the other major central banks are tightening, were forced to aggressively liquidate their speculative long positions.

According to the ABS, the quarterly increase was driven by higher utility, tobacco, and travel prices, offsetting weakness in vegetable, fuel and telecommunication costs.

“The most significant negative contributors are vegetables and automotive fuel,” the ABS said. “The most significant positive contributor is international holiday travel and accommodation.

The annual rate of 1.8% was unchanged from the previous quarter, and still below the RBA’s 2-3% inflation target. It has now been the RBA’s target in each of the past eight quarters. The RBA is currently forecasting that underlying inflation will sit between 1.5% and 2.5% by the end of the year, leaving the midpoint at 2%.

The AUD/USD is falling heavily and government bonds are rallying. This suggests investors are pricing in a lesser chance that the RBA will lift interest rates for the first time since late 2010 next year.

The news, however, doesn’t mean the RBA is considering a rate cut. This would only occur if the central bank saw weakness in labor markets conditions and the business sector.

Support for the NZD/USD continues to erode in the wake of political turmoil caused by recent election results. The downside momentum is strong enough to suggest the Forex pair will test its May low at .6817 over the near-term.