AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie CPI Expected to Jump 0.8%, but Not Enough to Sway RBA

The Australian and New Zealand Dollars fell last week in reaction to rising U.S. Treasury yields and a rising U.S. Dollar. The divergence in monetary policy between the U.S. Federal Reserve and the Reserve Bank of Australia also helped boost demand for the Greenback against the Aussie Dollar. Political uncertainty crushed the New Zealand Dollar last week, making the currency the biggest loser for the week.

The AUD/USD settled at .7814, down 0.0073 or -0.93%. The NZD/USD finished the week at .6960, down 0.0211 or -2.94%.

Both currencies had almost no reaction to Chinese economic reports last week since the major reports came in as expected. Chinese CPI met expectations with a reading of 1.6%. However, PPI exceeded the estimate with a reading of 6.9%. Quarterly GDP also met expectations with a reading of 6.8%.

In Australia, the RBA minutes continued to indicate the central bank has no intention to move interest rates over the near-term despite pressure from other major central banks.

The Australian Unemployment Change was 19.8K versus 14.1K. The Unemployment Rate fell to 5.5%.

The surprise emergence of a Labor-led coalition government in New Zealand pummeled the Kiwi as global investors contemplated a raft of potential changes to economic policy, including the targets of the country’s central bank.

In other news, New Zealand CPI came in better-than-expected at 0.5% versus an estimate of 0.4%. The GDT Price Index also came in lower at -1.0%.

Forecast

Rising U.S. Treasury yields and increasing risk appetite are expected to continue to weigh on the AUD/USD and NZD/USD this week.

The New Zealand Dollar is expected to continue to weaken amid the political uncertainty that is also likely to have longer-term ramifications.

Early Wednesday, Australian Dollar investors will get the opportunity to react to the latest data on consumer inflation. The quarterly CPI report is expected to show a 0.8% increase. This will be up from 0.2%. The quarterly Trimmed Mean CPI is expected to come in at 0.5%, equaling the previous read.

Traders will also have the opportunity to react to a number of U.S. economic reports including Durable Goods, Weekly Unemployment Claims and Advance GDP.

Another factor that could influence the direction of the market is President Trump’s appointment of the next Fed Chair. If he picks a hawkish person then the U.S. Dollar should soar against the Australian and New Zealand Dollars. If he moves on a dovish selection then we could see a short-covering rally by the AUD/USD and NZD/USD.

Additionally, on October 26, the European Central Bank meets to decide monetary policy. Its decision could trigger a volatile reaction in the Forex markets.