AUD/USD and NZD/USD Fundamental Forecast – November 16, 2016

The Australian and New Zealand Dollars posted volatile price swings on Tuesday, but ended with opposite results. The AUD/USD finished the session at .7559, up 0.0004 or +0.05%. The NZD/USD closed at .7099, down 0.0017 or -0.24%.

Early in the session the Australian Dollar firmed a little after the release of the Reserve Bank of Australia policy meeting minutes. The minutes showed inflation risks were balanced and this indicated a steadier monetary policy stance going forward. The RBA also expressed optimism over global growth, but keep in mind that the meeting took place before the election of Trump as president.

Both the Aussie and the Kiwi broke sharply later in the session following the release of a U.S. Retail Sales report that came in better-than-expected in October. The report showed U.S. households bought motor vehicles and a range of other goods. This report indicated the economy was experiencing enough sustained growth to warrant a rate hike from the U.S. Federal Reserve in December.

According to the U.S. Commerce Department, retail sales increased 0.8 percent last month. Additionally, September retail sales were revised up to show a 1.0 percent increase instead of the previously reported 0.6 percent rise. Furthermore, the combined September and October sales gain was the largest two-month rise since early 2014. This put sales up 4.3 percent from a year ago.

In other news, the Labor Department reported import prices increased 0.5 percent in October after gaining 0.2 percent in September. Over the last 12 months, however, import prices fell 0.2 percent. This was the smallest decrease since July 2014, an indication that inflation was creeping higher.

The Empire State Manufacturing Index was reported at 1.5, better than the -1.5 estimate and a marked improvement from the previous -6.8. Business Inventories were up 0.1%, slightly below the 0.2% estimate.

According to Fed Governor Daniel Tarullo, the Federal Reserve will have to monitor interest rates and tightening financial markets in reaction to Trump’s fiscal spending plans as it decides how quickly to tighten monetary policy.

Federal Reserve Vice Chairman Stanley Fischer expressed caution over market liquidity, but said overall, liquidity is adequate.

In New Zealand, the GDT Price Index came in at 4.5%. This was below the previous 11.4%.

Forecast

The AUD/USD and NZD/USD could continue to feel pressure on Wednesday if U.S. Treasury yields continue to rise. Treasurys will be influenced by producer inflation data which is expected to come in at 0.3%. Capacity Utilization is expected to be 75.5% and Industrial Production at +0.2%. FOMC Member James Bullard is also scheduled to speak.

Early Tuesday, Australian investors will get the opportunity to respond to the MI Leading Index which is expected to come in at 0.1%. The Wage Price Index is expected to rise  0.5%. New Motor Vehicle Sales should remain steady at about 2.5%.