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AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured as Downside Risks to Economic Growth Increase

Australian construction spending slid to its lowest in almost three years last quarter as a deepening downturn in home building spread to other sectors and posed a downside risk to growth across the economy.
James Hyerczyk
AUD/USD

The Australian Dollar hit a multi-year low on Wednesday and the New Zealand Dollar fell in sympathy with its neighbor amid coronavirus fears and the release of disappointing Australian construction data.

The higher-yielding Aussie and Kiwi have been pressured for weeks by expectations that the coronavirus’ impact on China’s economy will spread to their respective economies, forcing their central banks to cut interest rates sooner than expected.

At 08:42 GMT, the AUD/USD is trading .6577, down 0.0024 or -0.37% and the NZD/USD is at .6310, down 0.0012 or -0.19%.

In other news, the Australian Bureau of Statistics showed the value of construction work done in the December quarter of 2019 declined, putting further pressure on the Reserve Bank of Australia to take aggressive action to spur economic growth.

Coronavirus Fears Capping Gains, Driving Selling Pressure

The Australian Dollar reached an 11-year low versus the greenback on Wednesday as downside risks to global growth from the spread of the coronavirus continued to grow.

“With containment measures in South Korea and Italy, the global economic impact can be expected to widen and this can only be bad news for commodity currencies” like the Aussie and the New Zealand dollar, said Jason Wong, a senior markets strategist at Bank of New Zealand in Wellington. “Further downside pressure looks inevitable.”

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Australian Construction Spending Slides to 3-year Low

Australian construction spending slid to its lowest in almost three years last quarter as a deepening downturn in home building spread to other sectors and posed a downside risk to growth across the economy.

The weakness in housing is also unlikely to turn anytime soon as the industry wrestles with an overabundance of new apartment blocks begun when the market was booming.

Wednesday’s figures from the Australian Bureau of Statistics showed inflation-adjusted construction fell 3.8 percent in the June quarter, from the previous quarter, to stand at A$48.8 billion (US$45.75 billion). That was the lowest amount since late 2016 and off 11.1 percent from a year earlier.

The quarterly drop was far steeper than the 1 percent fall forecast by analysts and suggested gross domestic product (GDP) might also miss estimates, perhaps badly. The data is due on September 4.

“With construction representing around 13 percent of the economy this result will dent GDP, potentially in the order of 0.4 percentage points,” said Westpac senior economist Andrew Hanlan. “The housing downturn still has further to go and will weigh on conditions throughout 2019 and into 2020.”

Daily Forecast

Continue to look for more downside pressure on the Australian Dollar amid fears the impact of the coronavirus and the bushfires will shrink the Australian economy in the first three months of the year.

Economists at ANZ estimate the impact of the coronavirus will slash 0.5 of a percentage point off March quarter gross domestic product and a smaller hit from the bushfires.

The bank forecasts the economy to contract 0.1 percent in the first quarter, before recovering later in the year.

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