AUD/USD and NZD/USD Fundamental Daily Forecast – Investors Hoping Fed Minutes Reveal More Info on Inflation Concerns

The Australian and New Zealand Dollars are recovering and trading slightly better ahead of today’s U.S. housing data and the release of the U.S. Federal Reserve’s monetary policy meeting minutes. Additionally, Aussie and Kiwi traders are preparing for key economic reports early Thursday on employment and producer inflation respectively.

At 1000 GMT, the AUD/USD is trading .7864, up 0.0046 or +0.58% and the NZD/USD is at .7244, up 0.0010 or +0.13%.

Today, investors will get the opportunity to react to U.S. Building Permits and Housing Starts. Building permits are expected to show a 1.25 million unit increase. Housing starts are expected to come in at 1.22 million units.

The market moving event, however, will be the FOMC Meeting Minutes, due out at 1800 GMT, if it reveals any fresh insight from the central bank on inflation.

The recent string of weak U.S. inflation data makes this the number 1 concern for the Fed and investors, and both are hoping the central bank minutes reveal more than just the low inflation is “transitory”.

A hawkish Fed should pressure the AUD/USD and NZD/USD, and a dovish Fed should underpin the Forex pairs. I use the word “should” because ultimately, the direction of Australian and New Zealand Dollars will be determined by how Treasury investors feel about the tone of the minutes. If Treasury yields rise then the U.S. Dollar will rise also. If investors buy Treasuries then yields will fall, taking the U.S. Dollar with them. This would be bullish for the Aussie and the Kiwi.

Traders are also hoping the Fed reveals some of the details of its plan to begin reducing its massive $4.5 trillion debt portfolio. At its last meeting, it said it expected to winding down the portfolio “relatively soon”.

On Tuesday, U.S. retail sales recorded their biggest increase in seven months. This news slightly boosted market expectations the Fed will raise rates for a third time this year, lifting both U.S. government bond yields and the dollar. The crisis between the United States and North Korea also seems to be abating for now. This combined with strong economic data may mean investors will start pricing in another interest rate hike before the end of the year. This would be a negative for the Aussie and the Kiwi.