AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie, Kiwi Struggling Ahead of Key US Economic Reports

The Australian and New Zealand Dollars are under pressure on Friday, hurt by a stronger U.S. Dollar and the prospects of further rate hikes by the U.S. Federal Reserve.

Meanwhile in Australia, traders are worried the central bank won’t be able to tame inflation if it continues to worry about triggering a recession with rate hikes.

New Zealand is facing a multitude of problems including how to recover from a devastating natural disaster while preparing for an expected recession.

At 09:50 GMT, the AUD/USD is trading .6784, down 0.0022 or -0.33% and the NZD/USD is at .6215, down 0.0013 or -0.21%. On Thursday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $67.35, up $0.01 or +0.02%.

Australian Dollar

The Australian Dollar has been under pressure most of the week since a wage report missed expectations and the Federal Reserve meeting minutes indicated the need for further rate hikes to tame inflation.

Australian wages grew at the fastest annual pace in a decade last quarter but that was still short of market forecasts and could dampen the pressure for further aggressive hikes in interest rates.

As a result of the report, traders had wagered interest rates could peak as high as 4.35%, but that tempered toward 4.1% following the wages news.

Meanwhile, in the United States, the minutes from the Federal Reserve’s Jan. 31 – Feb. 1 meeting showed the belief that the risks of high inflation remained a “key factor” that would shape monetary policy and further rate hikes would be necessary until it was controlled.

New Zealand Dollar

The New Zealand Dollar has also been tilting to the downside most of the week in response to worries over how to pay for the recovery from a devastating natural disaster and a hawkish Federal Reserve.

The Reserve Bank of New Zealand (RBNZ) also raised interest rates by 50 basis points as widely expected, but RBNZ Chief Adrian Orr also forecast a recession to start in the second quarter of 2023 before growth resumes in 2024.

Looking Ahead…

With the Federal Reserve indicating its need to remain data dependent, today’s U.S. economic reports take on added importance. Market participants are particularly concerned about the pace of future rate hikes against a backdrop of contradictory economic signals, with inflation remaining high but the U.S. consumer proving surprisingly resilient.

January’s personal income and consumer spending figures are due before the bell, with a Dow Jones consensus forecast anticipating a 1.2% rise in personal income and 1.4% increase in consumer spending.

The personal consumption expenditures price index (PCE), also due Friday, is the Fed’s preferred measurement of inflation. It is expected to show a monthly rise of 0.4%, up from 0.3%.

Higher than expected PCE and consumer spending figures will put the pressure on the Fed to continue to raise interest rates and could possibly but a 50 basis point rate hike in March back on the table.