AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured by More Signs of Slowing Chinese Economy

The Australian and New Zealand Dollars posted dramatic reversals from early session strength to close lower on Monday. Traders blamed U.S. stock market weakness for the selling pressure. U.S. equities tumbled shortly after the opening in reaction to a disappointing U.S. earnings reports. This was largely blamed on the China’s slowing economy.

On Monday, the AUD/USD settled at .7164, down 0.0014 or -0.20% and the NZD/USD finished at .6830, down 0.0010 or -0.15%. Early in the session, the Aussie hit a high of .7205. The Kiwi reached its highest level since December 18 at .6873.

After a strong follow-through to the upside following Friday’s steep gains, the Australian and New Zealand Dollars started to attract sellers during the European session. The move was fueled by disappointing earnings reports from Caterpillar and Nvidia. Traders blamed the poor reports on the weakening Chinese economy.

Caterpillar posted weaker-than-expected earnings for the fourth quarter. The company said its sales in the Asia/Pacific region declined because of lower demand in China. Nvidia slashed its fourth-quarter revenue guidance to $2.2 billion from $2.7 billion. The chipmaker said “deteriorating macroeconomic conditions, particularly in China,” impacted demand for its graphics processing units.

Since both companies are seen as industry bellwethers, their disappointing earnings numbers indicate the slowdown in China is real.

With the blame being placed on the Asia/Pacific region and especially China, both the Australian and New Zealand, which are seen as proxies for China’s economy attracted fresh selling pressure, bringing an abrupt end to the rally.

The week started with the Aussie and Kiwi supported by expectations of a dovish U.S. Federal Reserve in this week’s monetary policy statement. On Wednesday, the Fed is widely expected to leave interest rates unchanged, while discussing the possibility of ending its balance sheet reduction program. Both moves are seen as a softening of previous Fed policy, which is bearish for the U.S. Dollar.

Forecast

According to the press release from Statistics New Zealand, “fuel imports rose sharply last year, driving up the annual trade deficit to $5.9 billion for the December 2018 year.”

“The trade deficit for 2018 is the largest annual trade deficit since the October 2007 year. The largest deficit is equal to 10 percent of exports, compared with 17 percent in the October 2007 year.”

“Both imports and exports were up for the December year, but the deficit has widened because imports have risen more. Annual imports for the year ended December 2018 reached a new high of $63.4 billion, up $6.9 billion (12 percent) from 2017.”

December 2018 Trade Balance

“The monthly trade balance was a surplus of $264 million (4.8 percent of exports). In December 2017 there was a surplus of $614 million.”

“For the December 2018 month, imports were up $323 million (6.6 percent) to $5.2 billion.  Exports were little changed, down $27 million (0.5 percent) to $5.5 billion compared with December 2017.”

Later today at 0030 GMT, NAB Business Confidence report will be released.

Monday’s price action highlights what traders should expect from the AUD/USD and NZD/USD over the near-term. Both the Aussie and Kiwi will rise as the U.S. Dollar weakens because of the dovish tone from the U.S. Federal Reserve. However, these gains will be short-lived if China’s economy continues to weaken.