AUD/USD and NZD/USD Fundamental Daily Forecast – Losses May Be Limited Because of Trade Deal Hopes

The Australian and New Zealand Dollars are trading sharply lower on Monday after Chinese government data showed that December exports and imports fell unexpectedly. This news deepened concerns of an economic slowdown in China. It also served as further proof that the U.S.-China trade dispute is having a negative effect on China’s economy.

At 0817 GMT, the AUD/USD is trading .7191, down 0.0025 or -0.34% and the NZD/USD is at .6804, down 0.0031 or -0.45%.

According to government data released earlier in the session, China’s trade surplus with the U.S. grew 17 percent from a year ago to hit $323.32 billion in 2018. According to Reuters, that’s the highest on record dating back to 2006. Still, overall Chinese trade surplus last year was the lowest since 2013, even though export growth was the highest since 2011, the news agency reported.

Exports to the U.S. rose 11.3 percent on-year in 2018, while imports from the U.S. to China rose a meager 0.7 percent over the same period.

China’s overall trade surplus for 2018 was $351.76 billion, the government said. Exports in the whole of 2018 rose 9.9 percent from 2017 while imports grew 15.8 percent over the same period, official dollar-denominated data showed.

Forecast

Last week, the Australian and New Zealand Dollars rose on the hopes of ending the U.S.-China trade dispute. This was in response to a successful three-day meeting between mid-level officials. Traders became more optimistic late in the week after U.S. officials announced higher-level meetings in Washington later in the month.

Today, the Aussie and Kiwi are trading lower because of weaker-than-expected import and export data from China for December.

China’s General Administration of Customs even said on Monday that the biggest worry in trade this year is external uncertainty and protectionism, forecasting the country’s trade growth may slow in 2019. Customs spokesman Li Kuiwen at a scheduled briefing said Asia’s largest economy is still growing steadily in 2019, but facing external headwinds.

Stale Data Versus Hopes of Ending the Trade War

Today’s lower price action in the AUD/USD and NZD/USD may only be a knee-jerk reaction to the data, which gave investors an excuse to book profits from the strong rally since the beginning of the year. Although a bearish surprise, the trade data is old or stale information. Currency traders tend to look forward so I expect the data to have a limited downside effect on the Aussie and Kiwi.

Even with early forecasts calling for external headwinds, the announcement of a trade deal before March 1 could stabilize the currencies. And with another trade meeting scheduled for later this month, I think the selling pressure will soon subside. Furthermore, traders are also reacting to the dovish Fed and the falling U.S. Dollar which have been supportive for the AUD/USD and NZD/USD.

Risk-Off Scenario

Perhaps having a bigger influence on the Aussie and Kiwi today is the risk-off theme. While the trade data may be contributing to stock market weakness, the bigger concern may be the impact of the on-going U.S. government shutdown.