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James Hyerczyk

The Australian and New Zealand Dollars are trading higher on Wednesday, mostly in reaction to a weaker U.S. Dollar. Traders are ignoring the negative headlines over U.S.-China trade relations and weaker-than-expected economic data out of Australia. Instead, we’re looking at some aggressive short-covering and position-squaring ahead of the start of trade talks between the two economic powerhouses on October 10.

At 09:02 GMT, the AUD/USD is trading .6741, up 0.0014 or +0.20% and the NZD/USD is at .6317, up 0.0019 or +0.30%.

Needless to say, it’s been a tough week with the narrative shifting several times. Some days, uncertainty is making the U.S. Dollar a more attractive asset, other days the greenback has weakened. The moves are likely being fueled by light volume as many of the major players remain on the sidelines ahead of the trade talks. With the outcome of the trade talks a 50/50 deal or worse, big money doesn’t seem to want to pick a side in the market.

Trade Tensions Still Major Concern

Despite the early strength in the Aussie and Kiwi, investors are still uncertain over the outcome of the trade talks. The headlines are causing the uncertainty with the U.S. expanding its black list of companies in China, and the world’s largest economy threatening retaliation. There is even a report from China that its trade delegation may cut short trade talks on Friday. While not triggering a break in the Aussie and Kiwi, the news may be keeping a lid on prices.


Aussie Traders Shrug Off Bearish Consumer Confidence

Australian consumer confidence tumbled to a four-year low even after three rate cuts by the Reserve Bank of Australia (RBA) and a healthy tax refund.

The Westpac Consumer Sentiment Index fell more than 5 percent in October to 92.8 points, its lowest reading since July 2015. The survey was taken the first week of October when the RBA cut rates a third time since June.

Westpac chief economist Bill Evans said the result would concern RBA officials.

“Typically, an interest rate cut boosts confidence particularly around consumers’ expectations for and assessments of their own finances,” Mr. Evans said.

“Issues that may also be unnerving consumers include the debate around the lack of response of fiscal policy to the deteriorating outlook; the banks’ partial pass through to the standard variable mortgage rate of the recent official rate cut; and the realization amongst Australians that wages growth is likely to remain stuck at a modest 2 percent a year or less for the foreseeable future,” Mr. Evans said.

Daily Forecast

Traders will be focused on the Fed minutes from its mid-September policy meeting. Traders are hoping the minutes offer clues as to whether further policy easing is yet to come.

On Tuesday, Fed Chair Jerome Powell said in a speech that the central bank is “not on a preset course” when it comes to future monetary policy. He also added that the Next FOMC meeting is still several weeks away, “and we will be carefully monitoring incoming information.”

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