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AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Sinks on Weak Consumer Inflation

By:
James Hyerczyk
Published: Jul 26, 2017, 04:09 UTC

The Australian and New Zealand Dollar are trading mixed shortly after the release of the Australian quarterly inflation data and well ahead of Wednesday’s

Australian Dollar

The Australian and New Zealand Dollar are trading mixed shortly after the release of the Australian quarterly inflation data and well ahead of Wednesday’s U.S. Federal Reserve interest rate decision and monetary policy statement.

At 0330 GMT, the AUD/USD is trading .7903, down 0.0032 or -0.39%. The NZD/USD is trading .7423, up 0.0006 or +0.08%.

AUDUSD
Daily AUDUSD

The Australian Dollar weakened after a report showed Australian consumer prices were surprisingly soft last quarter and core inflation stayed below target for a sixth straight quarter. The Consumer Price Index (CPI) rose 0.2 percent in the second quarter well short of the 0.4% forecast and 0.5% previous read. For the year, inflation is 1.9 percent. Traders were expecting it to increase to 2.2 percent.

Underlying inflation rose 0.5 percent in the second quarter, from the first, which matched the estimates and previous read.

The annual rate of 1.8 percent once again fell short of the Reserve Bank of Australia’s long-term target band of 2 percent to 3 percent. Inflation has been stuck inside this band since 2016.

Daily NZDUSD
NZDUSD

Forecast

The AUD/USD dropped on the CPI news because it served as a reminder of just why Australian interest rates are currently at historical low and set to remain at these levels for months to come.

The RBA has to be pleased with the news because the rapidly rising Australian Dollar could damage the economy by reducing exports. Given the weak CPI number, I don’t think the RBA will be thinking about raising rates this year. Investors reacted the same way by paring an already slim chance of a rate hike between now and December to about 8 percent.

Later today at 1800 GMT, the Fed will release its interest rate decision and monetary policy statement. Traders are no expecting an increase rate hike, but it is looking for hints on the timing and extent of future moves.

Traders will also be looking for clarity on the Fed’s tightening cycle and when they are going to start with the tapering of monetary policy stimulus.

I’d be surprised if the Fed said anything hawkish, however, the market is already dovish on the central bank so the main driver of the trade today will be the Australian CPI data. The dovish news will probably lead to provide taking.

In breaking news, Reserve Bank of Australia governor Philip Lowe is delivering a speech on the relationship that exists between labor market conditions, wage pressures and the outlook for inflation, and not just in Australia, but abroad.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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