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AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Traders Bracing for Heightened Volatility After CPI Report

James Hyerczyk
Tuesday’s price action suggests at least one rate cut has been priced in so it possible that we see a “sell the rumor, buy the fact situation.” However, weaker than expected numbers should drive the Aussie sharply lower.

The Australian and New Zealand Dollars are trading lower on Wednesday with all eyes on the Australian consumer inflation report due to be released at 01:30 GMT. Yesterday’s steep sell-offs in both currencies indicates that investors are likely pricing in a weak report, which would increase the odds of a Reserve Bank of Australia rate cut over the near-term. It would also solidify the chances of a Reserve Bank of New Zealand rate hike as soon as its May meeting.

At 01:11 GMT, the AUD/USD is trading .7093, down 0.0010 or -0.14% and the NZD/USD is at .6649, down 0.0009 or -0.14%.

On Tuesday, increased demand for risky assets could not save the two higher-yielding currencies with sellers in control most of the session. The Aussie found support at its mid-point of the year at .7079 so it is the stronger of the two currencies. Meanwhile, the Kiwi is trading lower for the year and within striking distance of its low for the year at .6591.

As far as the consumer inflation report is concerned, traders are pricing in a 0.2% read for quarterly CPI, down from the previously reported 0.5%. Trimmed Mean CPI is expected to come in at 0.4%, changed from the previous reading.

Hitting the forecast levels would mean that underlying inflation will remain below the bottom of the RBA’s 2-3% medium term target for the third consecutive year. This would at least mean the RBA would keep its cash rate at 1.5%, the lowest on record.

Economists expect that trend to continue with the forecasts calling for underlying inflation to actually move further away from the RBA’s target level.

We’re looking for heightened volatility with the release of the report. If the CPI hits the forecast then look for AUD/USD to solidify the chances of a 25-basis point rate cut. Financial market traders are fully priced for the RBA to cut Australia’s cash rate by 25 basis points by October 2019. Another 25 basis point cut, taking the cash rate to just 1%, is also close to fully priced by the middle of next year.

Tuesday’s price action suggests at least one rate cut has been priced in so it possible that we see a “sell the rumor, buy the fact situation.”

However, weaker than expected numbers should drive the Aussie sharply lower.

This article was originally posted on FX Empire

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