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AUD/USD and NZD/USD Fundamental Weekly Forecast – Key Reports: U.S. Consumer Inflation, Aussie Employment Change

Weak domestic data was primarily behind the weakness in the Australian Dollar last week. The sell-off was strong enough to drag down the New Zealand Dollar. Both currencies were also influenced by rising U.S. interest rates which made the U.S. Dollar a more attractive investment.

The AUD/USD settled at .7507, down 0.0099 or -1.31% and the NZD/USD finished at .6837, down 0.0045 or -0.66%.

AUDUSD
Weekly AUD/USD

Australian Dollar

Australian retail sales beat expectations with a read of +0.5% versus an estimate of +0.3%. The AIG Services Index was up slightly from the precious month at 51.7. The current account fell 9.1 billion. Traders were looking for a decline of 8.8 billion.

Retail sales grew at their fastest pace since May. The current account data showed that the country is a net borrower.

The Reserve Bank of Australia said Tuesday it is holding its benchmark cash rate unchanged at 1.5 percent. This news was widely expected. The central bank has kept rates at this level since August 2016.

RBA Governor Philip Lowe said wages growth would remain weak for a while yet, though he noted reports of a skills shortage in the jobs market, which could put upward pressure on wages. The RBA also said it was worried about Australians’ spending habits, as pay packets remain stubbornly stagnant and household debt is high.

Australian GDP was largely disappointing, leading to a steep drop on the daily chart that took the Forex pair to its lowest level since early June. The Australian Trade Balance was also disappointing, dropping from 1.60 billion to 0.11 billion and also coming in under the forecast.

NZDUSD
Weekly NZD/USD

New Zealand Dollar

Reserve Bank of New Zealand Governor Grant Spencer, speaking to business leaders in Auckland, commented: “To the extent that the leverage of monetary policy over domestic inflation may have reduced, this suggests a cautious approach when responding to inflation deviations from target and careful attention to our assessment of economic slack.

It may be appropriate for monetary policy to put relatively more weight on output, employment and financial stability relative to inflation. However, this can only be sustained if monetary policy’s long term price stability credentials are maintained.

In other news, the GDT Price Index rose 0.4%, ending a string of lower reading which began on October 17.

Forecast

Both the AUD/USD and NZD/USD will open the week in a weak position.

On Tuesday Australian Dollar investors will get the opportunity to react to a speech by RBA Governor Lowe. On Wednesday, the Australian Employment Change is expected to show the economy added 19.2K jobs in November. The Unemployment Rate is expected to come in at 5.4%.

Also this week, investors will get the opportunity to react to U.S. inflation data, retail sales and a Fed meeting.

Consumer inflation is expected to show a monthly rise of 0.4%, up from 0.1%. This number won’t affect the Fed’s December interest rate decision, but it could have an influence on the number of rate hikes in 2018.

On Wednesday, the U.S. Federal Reserve is expected to raise its benchmark interest rate 0.25% to 1.50%. This has been priced into the market for at least a month. We could see a short-covering rally in the AUD/USD or NZD/USD if the FOMC members express concerns over the number of rate hikes in 2018. A lower than expected CPI number could cause a few members to cut their forecasts for three rates down to two.

This article was originally posted on FX Empire

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