AUD/USD and NZD/USD Fundamental Daily Forecast – Boosted by Increased Demand for Risk, Weak U.S. Inflation

The AUD/USD and NZD/USD are trading higher on Friday following the release of a disappointing U.S. consumer inflation report. Increased demand for higher risk assets also helped support the Forex pairs which were under pressure all week due to geopolitical tensions between the United States and North Korea.

The report reduces the chances of another Fed interest rate hike later in the year, driving down U.S. Treasury yields while making the U.S. Dollar a less-desirable asset.

According to the U.S. Labor Department, the Consumer Price Index edged up 0.1 percent in July after coming in unchanged in June. The new report lifted the year-on-year increase in the CPI to 1.7 percent from 1.6 percent in June. However, this was still below the Fed’s 2 percent annual target. Traders and analysts were looking for a 0.2% increase.

The Core CPI, which strips out volatile food and energy prices, also gained 0.1 percent for the fourth straight month. Annually, it rose to 1.7 percent in the 12 months through July.

The limited gain in consumer inflation likely means the Fed will pass on a September interest rate hike. A December rate hike started the week at 50%, but it is likely to drop below this level.

Later today, Investors will get the chance to react to remarks from FOMC members Kaplan and Kashkari. Kaplan tends to be hawkish so dovish comments would be a surprise and likely drive up the AUD/USD and NZD/USD. Kashkari is the most dovish Fed member and he is likely to remain that way since inflation came in below expectations.