AUD/USD and NZD/USD Fundamental Weekly Forecast – NZ Employment Change Expected to Show Improvement

The Australian Dollar continued to lose ground to the U.S. Dollar. Last week, it plunged after taking out key technical support. The catalyst behind the selling was a weaker-than-expected quarterly consumer inflation report.

The AUD/USD finished the week at .7675, down 0.0139 or -1.78%.

Australian CPI was 0.6%, below the 0.8% estimate. Trimmed Mean CPI was 0.4% versus a 0.5% forecast. The news was disappointing because it likely means the Reserve Bank of Australia will refrain from raising interest rates in 2018.

The New Zealand Dollar continued to plunge against the U.S. Dollar due to political upheaval in the country. The NZD/USD settled the week at .6872, down 0.0088 or 1.26%.

Last week, the new government in New Zealand announced a pledge to reform the Reserve Bank Act, which will likely mean an expanded role in the country’s central bank in foreign exchange rate controls, as well as a crackdown on foreign buyers of residential property and a range of social policies including lifting the age of free doctors’ visits and a plan to increase the minimum wage.

Also pressuring the Aussie and the Kiwi was a rising U.S. Dollar. It was supported by a jump in U.S. Treasury yields in response to positive action toward U.S. tax reform, the appointment of a potentially hawkish Fed Chair and an improving economy.

Forecast

AUD/USD and NZD/USD traders are also likely to react to Trump’s announcement for Fed Chair. The Greenback could rally if Trump selects John Taylor, the most hawkish candidate.

Also late Friday, a federal grand jury in Washington approved the first charges in the investigation led by special counsel Robert Mueller into alleged Russian meddling in the 2016 U.S. presidential election.

The charges are sealed under orders from a federal judge, and it was not clear what the charges were, adding that anyone facing charges could be taken into custody as soon as Monday.

The U.S. Dollar could weaken depending on who is named in the indictments. The biggest reaction is likely to come if someone close to President Trump is named.

In other news, New Zealand’s quarterly Employment Change is expected to come in at 0.8%, a big improvement from the previously reported -0.2%. The Employment Rate is expected to drop from 4.8% to 4.7%.

Australia’s Trade Balance is expected to show a rise to 1.20B from 0.99B. Retail Sales are expected to improve by 0.5%, up from the previously reported -0.6%.

On November 1, the Fed is going to release its Federal Open Market Committee monetary policy statement. It is expected to leave interest rates a<1.25%. The language in the statement is expected to be hawkish and indicate the central bank will raise rates in December.

On November 3, all eyes will be on the U.S. Non-Farm Payrolls report. The headline number is expected to show the economy added 311K jobs in October. Average Hourly Earnings are expected to drop from 0.5% in September to 0.2%. The Unemployment Rate is expected to remain unchanged at 4.2%.

The longer-term trend is down for the AUD/USD and NZD/USD. However, oversold short-term conditions could trigger a short-covering rally which will then set up the next shorting opportunity.