AUD/USD and NZD/USD Fundamental Daily Forecast – No Surprise: RBA Leaves Benchmark Rate Unchanged

Risk aversion is helping to support the Australian and New Zealand Dollars early Tuesday as conditions have settled down in the U.S. stock markets after yesterday’s steep decline.
James Hyerczyk
AUD/USD
AUD/USD

Export-oriented currencies like the Australian and New Zealand Dollars finished lower against the U.S. Dollar on Monday as China imposed extra tariffs on U.S. products, igniting fears of a trade war.

The AUD/USD settled at .7660, down 0.0016 or -0.21% and the NZD/USD finished the session at .7214, down 0.0017 or -0.23%.

Daily AUD/USD

According to China’s finance ministry, China imposed extra tariffs of up to 25 percent on 128 U.S. products including frozen pork, as well as on wine and certain fruits and nuts, in response to U.S. duties on imports of aluminum and steel.

The tariffs, which took effect on Monday, matched a list of potential tariffs on up to $3 billion in U.S. goods published by China on March 23.

The Aussie and Kiwi were affected by the news because Australian and New Zealand are major trading partners with China and a trade war with the U.S. could lead to disruptions in their export traffic.

Daily NZD/USD

In other news, U.S. factory activity slowed in March amid a decline in new orders, but growth in the manufacturing sector remained underpinned by strong domestic and global economies.

On Monday, the Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 59.3 last month from 60.8 in February. Economists were looking for a reading of 60.1.

Construction Spending edged up 0.1 percent in February after coming in unchanged in January. Economists had forecast construction spending accelerating 0.5 percent in February. Construction spending increased 3.0 percent on a year-on-year basis.

U.S. financial markets showed little response to the data.

Forecast

Risk aversion is helping to support the Australian and New Zealand Dollars early Tuesday as conditions have settled down in the U.S. stock markets after yesterday’s steep decline.

At 0540 GMT, the AUD/USD is trading .7682, up 0.0022 +0.28%. The NZD/USD is at .7231, up 0.0017 or 0.24%.

In other news, the Reserve Bank of Australia left the cash rate unchanged at 1.5 percent, with the central bank board continuing to worry about weak wages growth.

The RBA board’s decision, announced following its April broad meeting on Tuesday, means Australia’s official interest rate has been at a record low for 20 months.

In a statement accompanying the decision RBA governor Philip Lowe said the bank expected an improvement in the national economic growth rate during 2018, with employment and business conditions positive.

However, high household debt and weak consumption spending as a result of sluggish wages growth have kept the bank from moving on rates.

The RBA decision was widely expected so it probably had little impact on the Australian Dollar. Furthermore, the RBA essentially said it is in no hurry to raise rates so there is nothing bullish in its statement.

Traders are likely to continue to react to any news regarding trade issues between China and the U.S., and investor appetite for risk. Negative trade war news and another steep sell-off in equities should be bearish for the Aussie and Kiwi.

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