AUD/USD and NZD/USD Fundamental Forecast – January 18, 2017
The Australian and New Zealand Dollars soared against the U.S. Dollar after the Greenback plunged in reaction to negative comments from President-elect Donald Trump. He told the Wall Street Journal that the dollar was “too strong”.
The AUD/USD finished at .7566, up 0.0090 or +1.20%. The NZD/USD closed the session at .7216, up 0.0114 or +1.60%.
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Trump told the Wall Street Journal when asked about doing business with China, “our companies can’t compete with them (China) because our currency is too strong.”
The dollar also ground as investors started to doubt Trump’s ability to run a government. Furthermore, it looks as if his relationship with the House Republicans could get off to a rocky start. Trump criticized their corporate-tax plan – a border tax designed to boost exports and cut imports – telling the Wall Street Journal that it was too complicated.
Traders are now beginning to doubt if Trump will be able to accomplish his promises of stimulus in a timely manner. This is weighing on the value of the Greenback because it is driving interest rates back down.
In other news, San Francisco Federal Reserve Bank President John Williams called for gradual U.S. interest rate hikes over the next few years to keep the economy from overheating and ultimately falling into recession.
Fed Governor Lael Brainard, a noted dove, said the U.S. central bank might hike rates more aggressively if deficit spending under Trump produced a quick economic boost.
Forecast
On Wednesday, investors will get the opportunity to react to a slew of U.S. economic data including consumer inflation, capacity utilization, industrial production and the Fed Beige Book. Fed Chair Janet Yellen is also scheduled to give a speech on monetary policy.
The consumer inflation report is most important. Monthly CPI is expected to rise 0.3%. This would put the annualized rate above 2.0% for the first time since the summer of 2014 at 2.1%.
The U.S. Dollar may get a boost against the Australian and New Zealand Dollars if the CPI number comes in better-than-expected. This is because it would increase the odds of a Fed rate hike in March. I don’t think the Fed is going to raise rates when it meets next week.
Any weakness by the AUD/USD and NZD/USD is likely to be short-lived because the focus this week will be on Trump’s inauguration speech and whether he can revive the markets with his talk of aggressive stimulus. The Fed will take the front seat starting on Monday.