AUD/USD and NZD/USD Fundamental Forecast – January 19, 2017

The Australian and New Zealand Dollars retreated on Wednesday against the U.S. Dollar in response to solid consumer inflation data and hawkish comments from Fed Chair Janet Yellen.

The AUD/USD finished at .7504, down 0.0061 or -0.81% and the NZD/USD closed at .7122, down 0.0094 or -1.30%.

The dollar firmed early in the session in response to the monthly report on consumer inflation. It showed the CPI rose 0.3%, in line with expectations. Annualized, consumer inflation was 2.1%. This put it above the Fed’s 2.0% mandate and marked the first time it was higher than this level since the summer of 2014.

The selling gained traction late in the session after Federal Reserve Chair Janet Yellen hinted at the possibility of several rate hikes in 2017.

Yellen said that rates were likely to rise “a few times a year” for the next couple of years.

“As of last month, I and most of my colleagues – the other members of the Fed board in Washington and the presidents of the 12 regional Federal Reserve banks – were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3 per cent,” she said in a speech.

Forecast

Yellen’s hawkish comments come just days after Trump’s dovish comment drove the dollar sharply lower. Traders should pay attention to this because this could indicate there is going to be a clash between Trump and the Fed at some time this year.

Just one day before Trump’s inauguration, I don’t think the major players are going to rock the Forex markets too much today so be prepared for a tight range on light volume.

Earlier today, the Business New Zealand Manufacturing Index came in as expected at 54.5. New Zealand Building Consents were down 9.2%. The previous read was a revised 2.0%.

Later today at 0000 GMT, Australia will release its MI Inflation Expectations. However the major reports at 0030 GMT will be the Employment Change and Unemployment Rate.

The Employment Change report is expected to show the economy added 10.2K jobs in December. Down from the previous 39.1K. The Unemployment Rate is expected to remain at 5.7%.

In the U.S. on Thursday, investors will get the opportunity to react to the latest data on Building Permits, Philadelphia Manufacturing, Weekly Unemployment Claims and Housing Starts.

Look for a bullish tone in the AUD/USD on a sustained move over .7541 and bearish tone on a sustained move under .7468.