AUD/USD and NZD/USD Fundamental Daily Forecast – Lifted by China Re-Opening and Hopes of Slower Fed Rate Hikes

The New Zealand and Australian Dollars are edging higher but struggling on Monday. The kiwi was struggling near its highest level in three weeks, while the Aussie rose to its highest level against the U.S. Dollar since Aug. 30.

China Moving Towards Reopening

One catalyst behind the Aussie and Kiwi’s strength is China’s continuous dismantling of much of its strict zero-COVID rules as it moves toward reopening its borders. Another catalyst are expectations the Federal Reserve could slow the pace of its rate hikes starting with the Jan. 31 – Feb. 1 policy meeting.

At 11:22 GMT, the AUD/USD is trading .6915, up 0.0040 or +0.57% and the NZD/USD is at .6384, up 0.0037 or +0.59%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $68.06, up $1.28 or +1.92%.

Yuan Soars to 5-Month High

Optimism over a swift economic recovery sent China’s offshore Yuan towards five-month highs against the Australian Dollar on Monday.

With analysts now expecting a faster economic rebound in China than first assumed, the Yuan climbed to its highest level since August and pulled along the Aussie, which is often used by global investors as a liquid proxy for the Chinese currency.

Traders Trim RBA Peak Rate

The softer U.S. economic data from Friday also fueled a rally in bonds, which saw Australian 10-year yields fall another 8 basis points to 3.64%, having dived 22 basis points last week.

Additionally, traders are still leaning towards another quarter-point hike from the Reserve Bank of Australia (RBA) to 3.35% in February, but trimmed the expected peak for rates to 3.93% from 4.0% last week.

Australian Building Approvals Sink

Data out on Monday underlined the damage higher interest rates were already doing to the economy, as approvals to build new homes dived 9% in November, far beyond forecasts of a 1% dip.

Weekly figures from property consultant CoreLogic showed house prices had fallen 8.4% from their May peak, the sharpest decline on record.

Short-Term Outlook

With the Fed and the RBA expected to raise rates at their next meetings by 25 basis points, the factor driving the Australian Dollar higher is the potentially bullish moves by China. First, they relaxed their COVID restrictions then they opened up the borders to travel.

But the big boost is coming from Beijing’s decision to ease restrictions on Australian coal imports into the country.