AUD/USD and NZD/USD Fundamental Daily Forecast – Underpinned by China’s Strong Producer Inflation Data

The Australian and New Zealand Dollars are trading mixed shortly before the U.S. opening on Monday. Volume is light and volatility is low, suggesting consolidation may be taking place after recent gains and as investors digest recent data while awaiting fresh economic news.

At 0925 GMT, the AUD/USD is trading .7876, down 0.0010 or -0.13% and the NZD/USD is at .7189, up 0.0019 or +0.26%.

Upbeat economic news from trading partner China is underpinning sentiment toward the commodity-heavy currencies. Data on Monday showed China’s producer prices rising at a rapid 6.9 percent annual pace in September, largely driven by strength in commodities.

China’s central bank governor also supported the Aussie and Kiwi after he predicted the Chinese economy would grow at a brisk 7 percent in the second half of this year, accelerating from the first six months and defying fears of a slowdown.

Early in the session, some traders said the Forex pairs were being supported by Friday’s weaker-than-expected U.S. Consumer Inflation data. However, helping to limit gains were hawkish comments from Fed Chair Janet Yellen who said on Sunday the U.S. economy remains strong and the strength of the labor market calls for continued gradual increases in interest rates despite subdued inflation.

Speaking at an international banking seminar, Yellen acknowledged that the persistence of undesirably low inflation this year has been a surprise. But she said she expected to start picking up as the effects of temporary factors, such as falling prices for consumer cellphone service, begin to fade.

“Economic activity in the United States has been growing moderately so far this year, and the labor market has continued to strengthen,” Yellen said.

Another positive for the Australian and New Zealand Dollars was concern over U.S. tax reform. Investors may be reacting to reports that the U.S. Republican tax reform plan may not be passed until early next year.

Forecast

There were no major reports from Australia and New Zealand on Monday, however, investors may be already preparing for inflation data from New Zealand. In Australia, the key events this week are the Reserve Bank of Australia (RBA) minutes and jobs data. Also in New Zealand, investors are still waiting to see the shape of its next government, which may be determined at the end of the week.

On Tuesday, New Zealand Consumer Inflation data is expected to show annual inflation of 1.8 percent, higher than the Reserve Bank of New Zealand (RBNZ) August prediction of 1.6 percent.

On tap in the U.S. on Monday are the Empire State Manufacturing Index. It is expected to come in at 20.3. The Federal Budget Balance is also expected to come in at -1.0 billion.

The direction of the AUD/USD and NZD/USD today is likely to be determined by the interest rate differential. If investors drive up U.S. Treasury yields in reaction to Fed Chair Yellen’s comments then look for the Forex pairs to weaken. If there is no reaction, or if Treasury yields drop then the Forex pairs could extend their gains.

Holding above .7847 will indicate buyers are coming in to support the AUD/USD. The upside breakout level for the NZD/USD is .7187.