AUD/USD and NZD/USD Fundamental Daily Forecast – Firming as Rate Cut Odds Drop for RBA, RBNZ

The Australian and New Zealand Dollars are trading higher on Wednesday as investors continue to reduce short positions on the hope of major progress toward a resolution of the trade war when the United States and China meet in early October.

The chances of this may have increased based on a report from Politico on Friday that was confirmed by the South China Morning Post early Wednesday that said China has offered to increase U.S. agricultural purchases in exchange for a delay in tariffs and easing of a supply ban against telecommunications giant Huawei Technologies.

At 06:32 GMT, the AUD/USD is trading .6875, up 0.0015 or +0.21% and the NZD/USD is at .6433, up 0.0010 or +0.16%.

According to the South China Morning Post, “China is expected to agree to buy more American agricultural products in hopes of a better trade deal with the United States as the two nations prepare for a meeting between their top negotiators next month.”

“A source familiar with the situation said working-level officials were discussing the text of a deal, which would be reviewed when Chinese Vice-Premier Liu He meets US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington in October,” according to the Post.

“The text is based on a draft the two sides negotiated in April, the source said on condition of anonymity.”

Chinese Leaders Try to Enlist Support from US Business Community

The South China Morning Post also reported that Chinese Premier Li Keqiang told a gathering of US business representatives on Tuesday that China wanted a mutually accepted solution to the trade dispute. Li also said Beijing welcomed investment by US companies in China, and that the country’s opening and reform would continue.

Furthermore, in a separate meeting with Citigroup CEO Michael Corbat, Liu said China firmly opposed the trade war and hoped the US business community would help foster stable and cooperative bilateral trade and economic relations.

Rate Cut Odds Drop, Underpinning Prices

The bearish tone in the AUD/USD and NZD/USD is rapidly softening because of the scheduling of the trade talks. The move has changed the timing of the next interest rate cuts from the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) by pushing them back by one month each. This is encouraging short sellers to adjust their positions. They could continue to cover positions over the near-term if conditions between the US and China continue to improve.

While not turning bullish on the Aussie and Kiwi, I have become less-bearish. As for the RBA, the market is no longer pricing in an October rate cut, instead it’s looking for a November rate cut. The RBNZ rate cut timing has been pushed back from September to November.