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AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured by Dip in Risk Sentiment

James Hyerczyk
·3-min read

The Australian and New Zealand Dollars are trading lower on Friday amid a drop in demand for higher-risk assets due to concerns over the spread of coronavirus globally, Biden’s U.S. stimulus package and weak economic data out of the Euro Zone.

The Aussie Dollar is also being pressured by weaker than expected retail sales data. The Kiwi Dollar is trading lower despite stronger-than-expected quarterly consumer inflation data.

At 10:30 GMT, the AUD/USD is trading .7721, down 0.0044 or -0.57% and the NZD/USD is at .7185, down 0.0031 or -0.43%.

After three straight days of losses, the U.S. Dollar is stabilizing against the Australian and New Zealand Dollars as demand for commodity-linked or riskier currencies fell amid a drop in global equity markets.

Helping to drive down risk sentiment is weaker business activity in the Euro Zone, which fell to a two-month low in January, preliminary data showed on Friday, on the back of stricter coronavirus-related lockdowns.

Australia Shoppers Pull Back in December, Outlook Still Strong

Australian retailers suffered their biggest sales drop in eight months in December, recoiling after consumers brought forward their Christmas shopping although timely card spending data by banks point to a rebound in the New Year.

The 4.2% month-on-month drop in sales was spread across five of the six retail categories, led by household goods, department stores and clothing, the Australian Bureau of Statistics (ABS) reported on Friday. Generally, the preliminary data is a good indicator of the final estimate which will be released on February 5. Economists had predicted a 2.5% decline.

Despite December’s dour results, Citi economists expect retail sales in the December quarter to rise about 1.5%, implying a 0.3 percentage point contribution to fourth-quarter gross domestic product.

New Zealand Quarterly Inflation Rises

New Zealand consumer inflation was firmer than economists expected in the fourth quarter, adding to signs the central bank may not need to cut interest rates any further.

Consumer prices rose 1.4% from a year earlier, Statistics New Zealand said Friday in Wellington, matching the third-quarter reading. Economists expected inflation to slow to 1.1%. Prices rose 0.5% from three months earlier, exceeding the 0.2% forecast.

Westpac on Thursday ditched its call for two more rate cuts from the Reserve Bank of New Zealand (RBNZ) and forecast rates would be held at 0.25% for the foreseeable future.

Westpac also expects the RBNZ will gradually taper the pace of bond purchases over the course of the year to around NZ$500 million, from the recent average of NZ$800 million.

Daily Forecast

The Aussie and Kiwi are trading lower because of the drop in demand for risky assets. The economic data was not bad enough to encourage longs from lightening up on the long side. But expectations of a slowdown in the global economy, could drive investors into the safety of the U.S. Dollar, at least temporarily.

December’s drop “should not be taken as a signal that the economy is weakening,” National Australia Bank economist Tapas Strickland said, noting retail sales were still up 9.2% from pre-pandemic February levels.

The New Zealand CPI data was especially important because it likely means traders will scale back the chance of any further policy easing in the country given the surprising strength of its economy.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire