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AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie Traders Keying on Quarterly Consumer Inflation Data

James Hyerczyk
In Australia, traders will get a chance to react to quarterly consumer inflation data. Better-than-expected data will likely buy additional time for the RBA before it has to finally cut rates. Weak data will likely move up the expected rate cut. Quarterly CPI is expected to come in at 0.2%, down from the previously reported 0.5%. Trimmed Mean CPI is expected to come in at 0.4%, unchanged from the previous reading.

Last week, the Australian Dollar posted a two-sided trade before closing slightly lower as investors started to factor in a potential rate cut by the Reserve Bank of Australia later in the year. The economic data was mixed, which caused investors to adjust the timing of the expected rate cut.

The price action suggests that investors may have moved back a potential rate cut from perhaps May or August to later in the year. Nonetheless, the weaker close indicates the bets are still on the bearish side, especially since the U.S. economy is showing signs of strengthening.

Treasury yields have been slowly rising, which has been underpinning the U.S. Dollar. Demand for risky assets has been steady and a U.S.-China trade deal looms. This news should’ve been supportive for the Australian Dollar. Instead, the Aussie closed lower for the week.

Last week, the AUD/USD settled at .7151, down 0.0021 or -0.29%.

Mixed-to-Better News Can’t Save the Aussie

The Australian Dollar reacted to mixed economic news by posting a choppy, two-sided trade before setting lower for the week.

The Aussie edged lower shortly after the Reserve Bank released the minutes of its April meeting that indicated a dovish tone in the policy review.

The minutes showed that policymakers saw a marked slowdown in the Australian GDP that offset the sustained labor market growth. The minutes also revealed that policymakers expect inflation to remain muted for some time. Additionally, the minutes disclosed the RBA discussed interest-rate cuts at its April board meeting and concluded there was “not a strong case” for an adjustment in the near term.

RBA board members conceded interest rates were unlikely to need to rise in the near future and decided standing pat would allow it to be “a source of stability and confidence.” In doing so, it noted the impact of further easing would be “smaller than in the past” because of high household debt and declining property prices.

The AUD/USD was also boosted by data from China which showed its economy grew at a 6.4 percent annual pace in the first quarter, above expectations for a 6.3 percent growth rate. Additionally, Industrial Production rose 8.5%, beating the 5.6% forecast. Retail Sales rose 8.7%, better than the 8.3% estimate.

Finally, the Aussie Dollar had a mixed reaction to Australian jobs data. The Employment Change report showed a total 25,700 new jobs were created in March, surging past expectations for a rise of 12,000. Most impressive was that all of the increase was led by full-time work with part-time decreasing 22,600.

Additionally, the unemployment rate rose to 5.0 percent in March from an eight-year trough of 4.9 percent the previous month as the participation rate climbed to 65.7 percent in a sign more people went looking for work.

Although traders are pricing in an RBA rate cut for later in the year, the employment report may have bought the central bank a little time. The AUD/USD price action suggests that traders may have increased bets the RBA will not rush to ease rates even though the broader economy has seemingly lost momentum.

New Zealand Dollar Pressured by Weak CPI Data

After opening the week steady, the New Zealand Dollar took a dive on Wednesday and never recovered, finishing near its low for the week. The catalyst behind the selling pressure was weaker-than-expected consumer inflation data. The bearish news was offset slightly and temporarily by positive economic data from China and the New Zealand government’s decision to shelf an ill-timed capital gains tax.

Statistics New Zealand said the Consumer Price Index (CPI) for the quarter ending in March came in at 0.1 percent, below market expectations of about 0.3 percent and the Reserve Bank’s 0.2 percent forecast. That figure also took the annual inflation rate to 1.5 percent, below the central bank’s 2 percent target.

Given the news CPI data, New Zealand economists are now predicting the Reserve Bank will cut its official cash rate from its present record low at 1.75 percent to 1.5 percent in May.

In other news, Prime Minster Jacinda Ardern said the public has spoken and she won’t introduce a capital gains tax while she leads the Labour Party. The news produced a small technical bounce in the Kiwi, but not enough to change sentiment.

For the week, the NZD/USD settled at .6687, down 0.0075 or -1.10%.

Weekly Forecast

There is nothing in the news this week to suggest a turnaround in the New Zealand Dollar. Any upward price action will likely be fueled by position-squaring or oversold technical conditions.

In Australia, traders will get a chance to react to quarterly consumer inflation data. Better-than-expected data will likely buy additional time for the RBA before it has to finally cut rates. Weak data will likely move up the expected rate cut. Quarterly CPI is expected to come in at 0.2%, down from the previously reported 0.5%. Trimmed Mean CPI is expected to come in at 0.4%, unchanged from the previous reading.

This week, the dollar should be impacted mostly by Durable goods with Advance GDP a close second.

Core Durable Goods are expected to come in at 0.2%, better than the previously reported -0.1%. Durable Goods Orders are expected to have risen by 0.7%, an improvement from last month’s -1.6%.

Due to the government shutdown earlier in the year, there are going to be two Durable Goods reports in April. The first one, released on April 2, showed new orders for key U.S.-made capital goods unexpectedly fell in February and shipments were unchanged, but data for January was revised slightly higher.

Advance GDP is expected to come in unchanged at 2.2%. The last report, released on March 28, showed U.S. economic growth cooled by more than initially reported last quarter on revisions to consumer and government spending, signaling mounting challenges to the expansion as it nears a record duration.

Gross Domestic Product grew at a 2.2 percent annualized rate, Commerce Department data showed late last month, less than the initial 2.6 percent reading and projections for a revision of 2.3 percent.

This article was originally posted on FX Empire

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