AUD/USD and NZD/USD Fundamental Forecast – April 26, 2017

Both the Australian and New Zealand Dollars are under pressure on Wednesday.

The AUD/USD retreated to its lowest level in nearly a week after March quarterly inflation missed expectations. Australia’s headline inflation during the first quarter was 0.5%. Yearly inflation was 2.1%. Both numbers fell a little below the forecast numbers, with economists predicting growth of 0.6% and 2.2% respectively.

Despite the reaction by investors, consumer inflation did creep into the central bank’s two to three percent inflation target for the first time in two years. However, the higher inflation figure also supports the Reserve Bank’s concerns over housing and employment.

The NZD/USD is under pressure because of concerns over Trump’s trade barriers. The selling of the New Zealand Dollar coincided with the news that the U.S. Commerce Department announced duties averaging 20 percent on Canadian softwood.

At that time, Mr. Trump also criticized Canada’s tariffs on imports of U.S. milk products. Traders may be worried that Trump’s next move may be against the dairy industry which could have an effect on the New Zealand economy.

Forecast

The fact that the AUD/USD and NZD/USD have fallen this week despite increased demand for higher-yielding assets suggests that the weakness in the two currencies is being fueled by domestic issues.

As far as the Australian Dollar is concerned, investors remain worried about the housing industry and labor markets. These two factors were mentioned specifically in the Reserve Bank of Australia’s April minutes.

In the minutes of the April board meeting, it emphasized the labor and housing markets “warranted careful monitoring over coming months”. The rising CPI numbers could add to the worries over housing because they may drive up home values, producing bubble-like conditions later in the year.

The NZD/USD could remain under pressure until the Trump Administration clarifies its stance on subsidized dairy prices. The price action suggests that investors are pricing in the worst case scenario. The New Zealand Dollar could remain under pressure as long as dairy prices remain in focus.