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AUD/USD and NZD/USD Fundamental Daily Forecast – Optimism Over US-China Trade Relations Underpinning Aussie, Kiwi

The AUD/USD and NZD/USD should continue to be underpinned as long as investors remain optimistic over the developments over US-China trade relations. Technical factors could slow down the rally because both Forex pairs are nearing potential resistance areas. A risk-off scenario because of heightened stock market volatility, or turmoil in Europe is likely to drive investors into the safe-haven U.S. Dollar, which could put pressure on the AUD/USD and the NZD/USD.
James Hyerczyk
AUD/USD and NZD/USD
AUD/USD and NZD/USD

The Australian and New Zealand Dollars are inching higher on Wednesday, putting both currencies in a position to challenge last week’s highs. After starting the week under pressure due to expectations of higher interest rates from the Fed, the Aussie and Kiwi have mounted strong recoveries on the hope that the U.S. and China would soon reach a viable solution to the lingering trade dispute.

At 0630 GMT, the AUD/USD is trading .7220, up 0.0002 or +0.02% and the NZD/USD is at .6778, up 0.0012 or +0.19%.

On Tuesday, the Aussie and Kiwi were underpinned after The Wall Street Journal broke the story that Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He had resumed trade talks.

Later in the trading session, the AUD/USD and NZD/USD strengthened further after White House economic advisor Larry Kudlow confirmed reports of renewed talks between the U.S. and China on trade.

The renewed trade talks are important because they could lead to a smooth transition into higher level talks between U.S. President Donald Trump and Chinese President Xi Jinping at the G-20 summit in Buenos Aires, Argentina on November 30 – December 1.

Australian Economic News

Early Wednesday, the Westpac Consumer Sentiment report came in better than expected, up 2.8% versus a previous read of 1.0%. The quarterly Wage Price Index rose 0.6%, matching the forecast. However, the previous quarter was revised lower to 0.5%.

China Economic News

Investors are also reacting to the release of fresh economic data from China. Earlier today, China reported that the country’s Industrial Production for October came in at 5.9 percent higher than a year ago. This was slightly better than the 5.8 percent forecast.

Fixed Asset Investment came in at 5.7 percent higher than a year ago. Investors were looking for an increase of 5.5 percent.

China’s Retail Sales report was disappointing. The year-to-year number came in at 8.6 percent higher, much lower than the 9.2 percent forecast.

China’s statistics bureau showed retail sales growth in China unexpectedly dipped to the slowest pace since May last month while real estate decelerated further.

The October figure was down 0.7 percentage points from September’s level. Furthermore, it took sales growth during 2018 down a tenth of a point to 9.2 percent, however, the dip was even worse for online sales which showed a full percentage point decline for the first ten months to 26.7 percent.

Forecast

Supportive Outlook

The AUD/USD and NZD/USD should continue to be underpinned as long as investors remain optimistic over the developments over US-China trade relations. Technical factors could slow down the rally because both Forex pairs are nearing potential resistance areas.

The upside target zone on for the AUD/USD that could put a cap on gains is .7252 to .7307. This zone stopped the rally last week at .7302. The NZD/USD is currently trading inside its retracement zone at .6742 to .6818. This zone also provided resistance last week.

Investors are also watching investor demand for risk. Low stock market volatility could also be supportive for the Aussie and Kiwi because it would weaken the role of the U.S. Dollar as a safe-haven currency.

Bearish Scenario

A risk-off scenario because of heightened stock market volatility, or turmoil in Europe is likely to drive investors into the safe-haven U.S. Dollar, which could put pressure on the AUD/USD and the NZD/USD.

Traders will also get the opportunity to react to the latest U.S. data on consumer inflation. The CPI is expected to come in at 0.3 percent. Core CPI is expected to have risen 0.2 percent.

Stronger than expected CPI data could be bearish for the Aussie and Kiwi because it will support the Fed’s case for additional rate hikes, making the U.S. Dollar a more attractive investment.

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