AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie, Kiwi Rebound Amid Increasing Demand for Higher Yields

The Australian and New Zealand Dollars are trading higher on Tuesday after reversing early session weakness that was fueled by a combination of mixed news over the progress of trade talks between the United States and China, central bank minutes and economic data. Increasing demand for risky assets is also driving investors into the higher-yielding Aussie and Kiwi.

At 10:50 GMT, the AUD/USD is trading .6820, up 0.0014 or +0.17% and the NZD/USD is at .6409, up 0.0010 or +0.16%.

Demand for Risk Strong

Contributing to the strong intraday reversal by the Australian and New Zealand Dollars on Tuesday is the rally to new record highs by the major U.S. stock indexes. This jump in demand for higher-yielding assets may be serving as proof that investors believe a trade deal between the U.S. and China is close, just like White House Economic Adviser Larry Kudlow said late last week.

It could also be a sign that investors are shrugging off a report from CNBC, citing a government source, that China is pessimistic about a trade deal with the U.S. This is reportedly due to different views on the cancellation of tariffs.

RBA Considered November Rate Cut

Earlier in the session, the AUD/USD was pressured after the Reserve Bank of Australia (RBA) minutes showed policymakers acknowledged there was a case to cut the cash rate to a new record low before leaving it unchanged at 0.75 percent at this month’s board meeting.

Minutes from the RBA’s monthly meeting on November 5 showed board members noted declining retail sales, a weaker outlook for household income, and that inflation and GDP growth had both come in below forecast last year.

However, members agreed that further evidence on spending by households was required before drawing any conclusions about the effectiveness of its three rate cuts since June or government tax rebates.

“Having already delivered a substantial monetary stimulus in recent months, there was a case to wait and assess the effects of this stimulus, especially given the long and variable lags,” read the minutes released on Tuesday.

New Zealand Producer Prices Rise

Producer price outputs in New Zealand were up 1.0 percent on quarter and 1.8 percent on year in the third quarter of 2019, Statistics New Zealand said on Tuesday.

Input prices rose 0.9 percent on quarter and 2.1 percent on year, while capital goods prices advanced 0.8 percent and 2.7 percent on year.

Prices paid by farmers gained 0.9 percent on quarter and 2.2 percent on year, while salaries and wages rose 0.8 percent on quarter and 2.4 percent on year.

Prices paid by consumers were up 0.7 percent on quarter and 1.5 percent on year.

Daily Forecast

Demand for higher-yielding assets will be supportive for the Aussie and Kiwi based on the early price action. This is expected to continue as long as investors remain optimistic that a trade deal is likely over the near-term. However, don’t expect to see the start of a long-term rally since traders are starting to price in future rate cuts by both the Reserve Bank of Australia and the Reserve Bank of New Zealand.