AUD/USD and NZD/USD Fundamental Forecast – January 17, 2017

The Australian and New Zealand Dollars softened on Monday on increased risk aversion ahead of a key speech on the U.K.’s plan to leave the European Union. Concerns were strong enough to overcome further strength in commodity prices.

The AUD/USD closed the session at .7476, down 0.0022 or -0.29%. The NZD/USD ended the session at .7102, down 0.0024 or -0.33%.

Early Monday, Statistics New Zealand reported that its Food Price Index fell 0.8%. This was lower than the precious -0.1% read. This report covers the change in the price of food and food services purchased by households.

In Australia, the MI Inflation Gauge came in at 0.5%, a big jump from the previously reported 0.1%. This report from the Melbourne Institute measures the change in the price of goods and services purchased by consumers. It is designed to mimic the quarterly government released CPI data.

Forecast

Monday was a bank holiday in the U.S. so volume and volatility were below average. Things should pick up today as the major players return to action.

Early in the session investors had the chance to react to fresh economic data from New Zealand and Australia, but the primary focus today and the rest of the week will be on geopolitical events. These reports included New Zealand NZIER Business Confidence which came in at 28, higher than the previous 26. Australian Home Loans rose 0.9%, beating the 0.1% forecast and the previous -0.6% read. New Motor Vehicle Sales also rose 0.3%, up from the previous -0.7%.

In the U.S., investors will have the opportunity to react to the latest data on the Empire State Manufacturing Index. It is expected to show a read of 8.1, slightly below the previous 9.0.

FOMC Member William C. Dudley is expected to give a speech on consumer behavior and San Francisco Fed President will deliver a speech on the outlook for the economy. This may include information on the timing of the Fed’s three rate hikes in 2017.

The reports and Fed speakers may take a backseat to a speech from U.K. Prime Minister Theresa May. She is going to outline her plan for a “hard exit” from the European Union. As she outlines her 12 priorities for the upcoming negotiations with the EU, there may be volatility in the financial markets.

Increased aversion to risk may cause investors to sell the AUD/USD and the NZD/USD.