AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Erases Earlier Losses to Finish Higher for Year

Concerns over an escalating trade war between the United States and China kept the pressure on the Australian and New Zealand Dollars most of the year, but a late year surge helped erase nearly all of those earlier loses. The selling was primarily driven by aggressive interest rate cuts by the Reserve Bank of Australia and the Reserve Bank of New Zealand. The action by the central bankers took their respective benchmark rates to record lows.

The AUD/USD settled the year at .7018, down 0.0034 or -0.48% and the NZD/USD finished at .6732, up 0.0014 or +0.21%.

The Aussie and Kiwi reached their lows of the year the week-ending October 4 at about the same time the U.S. and China renewed trade talks after both parties walked away from the negotiation table in May and retaliated against each other with a series of tariffs and tariff threats.

A Phase One trade agreement was finally reached on December 13, just two days before a fresh round of tariffs were scheduled to be implemented by the United States and China on December 15.

The AUD/USD and NZD/USD ended the year on a high note amid increasing demand for risky assets. The strength was primarily driven by the dumping of the U.S. Dollar as a safe-haven hedge. During the height of the trade war, investors were buying the U.S. Dollar as protection against an escalation of the trade war.

At the start of the new year, the Aussie and Kiwi are expected to continue to be supported by the euphoria created by the trade deal announcement. However, at some point, this extreme optimism is going to have to come to an end, and then traders will have to deal with the economic data and central bank activity.

The announcement of the trade deal has reduced the chances of near-term rate cuts by the RBA and RBNZ. This has been supportive for both currencies. However, both the Aussie and Kiwi could shed some of their gains if there is a sooner-than-expected rate cut in 2020.

The NZD/USD has been particularly strong since early December after a speech by Finance Minister Grant Robertson. In his speech, he signaled a “significant” fiscal stimulus.

“We are currently finalizing the specific projects that the package will fund but I can tell you this – it will be significant,” he said.

“Right now, we can borrow at an interest rate of 1.3% for 10 years. Just think about that for a minute,” Robertson said. “We have the lowest borrowing costs in New Zealand’s history, so it is time to invest.”