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AUD/USD and NZD/USD Fundamental Daily Forecast – Pessimism Wipes Out Trade Deal Premium

James Hyerczyk

The Australian Dollar is trading flat against the U.S. Dollar on Wednesday after early session weakness drove the currency into its lowest level since December 11. This means that the entire Phase One U.S.-China trade deal premium has been wiped out. Meanwhile the New Zealand Dollar is drifting lower for a fourth straight session. It briefly pierced the January 15 at .6584 before rebounding slightly.

At 10:29 GMT, the AUD/USD is trading .6844, down 0.0001 or 0.01%. The NZD/USD is at .6592, down 0.0003 or -0.05%.

Bushfires Send Consumer Confidence Lower as Mini Retail Boom Rolls Over

Australia’s devastating bushfire season has driven already weak consumer confidence even lower, indicating the mini-boom in retail sales we saw last year could be coming to an end soon.

Australia’s consumer confidence declined in January as devastating bushfires weighed on economic growth outlook, survey data from Westpac showed on Wednesday. The Westpac-Melbourne Institute Index of Consumer Sentiment declined 1.8 percent to 93.4 in January from 95.1 in December.

A reading of 100 is the breakeven point between optimism and pessimism – the lower the number, the grimmer the outlook.

Westpac chief economist Bill Evans said the result was hardly surprising.

“Since the lows of the global financial crisis, where the index averaged only 89 over a 15-month period from March 2008 to May 2009, there have only been seven monthly readings where the index has printed below 93.4,” Mr. Evans said.

“In short, confidence has been further eroded by the bushfires but, because the index was starting from such a modest level, it was likely that the fall in confidence would be less than some may have expected.”

Mr. Evans said the pessimism is consistent with the generally lackluster reports on consumer spending.

“The surprising jump in retail sales which was reported for November is likely to have largely reflected the ‘Black Friday’ effect.”

Retail Sales Likely to Weaken Again

The latest cashless sales data reported by National Australia Bank supports the view that retail sales are likely to slide again.

The NAB found there had been a pullback in retail turnover in December, after a very strong November spurt driven by expanding Black Friday sales bringing forward Christmas spending.

However, NAB chief economist Alan Oster said retailers have more fundamental issues to deal with than new seasonal patterns in shopping.

“Unemployment set to edge higher, sluggish wage growth and elevated consumer debt continue to dampen consumer sentiment, despite interest rate cuts and higher house and share prices,” Mr. Oster said.

Daily Forecast

The bearish consumer confidence news is likely to keep a lid on the AUD/USD on Wednesday. If there is an intraday rally, it is likely to be driven by short-covering ahead of Thursday’s Employment Change and Unemployment Rate reports.

Employment Change is expected to show the economy added 12.2K jobs in December. The Unemployment Rate is expected to remain at 5.2%.

Better-than-expected numbers could trigger a short-covering rally, knocking out some of the weaker bears. However, this will only give some of the stronger bears another opportunity to short the Aussie Dollar at more favorable price levels.

This article was originally posted on FX Empire