Yahoo Finance AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Rises as NZ Inflation Data Dims Possibility of Rate Cut
The New Zealand Dollar is trading higher against the U.S. Dollar early Wednesday in reaction to data which showed that consumer inflation edged higher in the fourth quarter, dimming the possibility of an interest rate cut.
At 0523 GMT, the NZD/USD is trading .6781, up 0.0033 or +0.48%.
The news about a global economic slowdown and the possible cancellation of trade talks between the U.S. and China weighed on the Australian Dollar early in the session, but the better-than-expected CPI data from New Zealand helped turn the Aussie positive.
At 0523 GMT, the AUD/USD is trading .7137, up 0.0017 or +0.27%.
New Zealand Quarterly Inflation Still A Little Weaker than RBNZ Forecast
In New Zealand, quarterly inflation rose by 0.1 percent in the fourth quarter of 2018, a little weaker that the Reserve Bank of New Zealand’s (RBNZ) forecast of 0.2 percent and below the 0.9 percent rise in the previous period.
Year-on-year inflation was at 1.9 percent, in line with the third-quarter figures and slightly below RBNZ’s target mid-point of 2-percent.
Economists had forecast year-on-year inflation to ease to 1.8 percent and quarter-on-quarter inflation to stay flat.
Chances of RBNZ Rate Cut Reduced
According to data compiled by Reuters, before the inflation data announcement the market was pricing in a 50 percent chance that the RBNZ’s next move would be to cut interest rates this year. In November, the RBNZ struck a neutral tone saying its next move would depend on how the economy fared and cautioned of downside risks from global trade frictions.
U.S.-China Trade Relations
Aussie and Kiwi traders are also paying attention to news regarding U.S.-China trade relations. There are increased concerns over the lack of progress in U.S.-China trade negotiations. Traders are also expressing some caution following a report that the White House had canceled a trade planning meeting with Beijing on January 30-31.
The Financial Times said the U.S. had canceled a trade meeting with Chinese officials scheduled for later this month. The report was later confirmed by a source familiar with the situation to CNBC’s Kayla Tausche.
The source claimed the meeting was canceled due to outstanding disagreements between the two sides over the enforcement of intellectual property rules. Should this report prove to be true, it would likely mean that the two economic powerhouses would fail to agree on a permanent solution to the trade dispute before the March 1 deadline. This would mean that the White House would likely reinforce punitive tariffs on roughly half of all Chinese exports to the U.S.
A White House spokesman told CNBC that “the teams remain in touch in preparation for high level talks with Vice Premier Liu He at the end of this month.”
The Treasury Department and the U.S. trade representative’s office did not respond to requests for comment. Furthermore, White House economic advisor Larry Kudlow denied that an official meeting had been canceled.
Forecast
We could be looking at a mixed market on Wednesday with the NZD/USD continuing to strengthen on the inflation news and the AUD/USD weakening on U.S. – China concerns.
The improvement in underlying inflation means the RBNZ won’t be cutting interest rates anytime soon. However, the rally is not expected to last too long. With headline inflation set to fall further below target due to the global economic slowdown and slowing domestic GDP growth, the prospect for a rate hike remains in the distant future.
Furthermore, if the U.S. confirms the cancellation of the U.S.-China trade talks planned for January 30-31, both the Aussie and the Kiwi could feel renewed selling pressure.
This article was originally posted on FX Empire
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