AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Keeps Official Cash Rate on Hold for 28th Consecutive Month

The Australian and New Zealand Dollars surged on Monday in response to the 90-day truce agreed upon between the United States and China over the week-end. Although current tariffs will continue, future tariffs will be delayed, allowing the two economic superpowers to negotiate a more permanent solution to their current trade disputes.

The Australian Dollar broke out above the August 21 main top at .7382 before retreating ahead of the close to finish below the August 28 top at .7363. The selling was likely related to position-squaring ahead of Tuesday’s Reserve Bank of Australia Rate Statement.

Despite the setback, the Aussie remained above a gap on the daily and weekly chart created when it opened sharply higher early Monday.

The New Zealand Dollar also gapped higher on the daily and weekly charts early Monday, however, the buying was strong enough for the Forex pair to hold on to its gains. In the process, it surged above the June 25 top at .6922.

Traders said doubts about the trade truce struck between the United States and China, strong U.S. economic data and comments from a senior U.S. Federal Reserve official also helped stall the rally in the Australian Dollar.

In the U.S., ISM Manufacturing PMI came in at 59.3, much higher than expected. This helped to lift shorter-dated U.S. Government bond yields, making the U.S. Dollar a more attractive asset.

Comments from U.S. Federal Reserve Vice Chair Richard Clarida may have also helped the U.S. Dollar gains some ground. Clarida’s comments sounded a little hawkish as he talked about “symmetry” around the Fed’s 2% inflation target and playing down the concept of a “Powell put”, cautioning investors against thinking that the Fed would act to halt a sharp stock market decline.

Forecast

The Australian and New Zealand Dollars are trading higher on Tuesday, following the release of the RBA Rate Statement. At 0349 GMT, the AUD/USD is trading .7369, up 0.0011 or +0.15% and the NZD/USD is at .6961, up 0.0032 or +0.45%.

The Reserve Bank of Australia extended its record-breaking run of inaction on rates, keeping the official cash rate on hold for a 28^th consecutive month. Following its December meeting on Tuesday, the RBA kept the official cash rate at 1.5 percent. Economists expect the central bank to keep the cash rate on hold at 1.5 percent until at least the fourth quarter of 2019, according to Bloomberg survey.

In other news, the Australian Current Account came in at -10.7 Billion, worse than the -10.2 Billion forecast. The previous month was revised better to -12.1 Billion.

Later on Tuesday, in New Zealand, traders will get the opportunity to react to the latest GDT Price Index. In the U.S., FOMC Member William speaks and the IBD/TIPP Economic Optimism report will be released.

Early Wednesday, Australia will release its latest data on quarterly GDP.

The upside momentum in the NZD/USD is likely to continue until the euphoria from the US-China trade dispute wears off. Or until the doubts expressed over whether the negotiations will bear fruit encourages long investors to start booking profits.

In AUD/USD we could see a labored rally or a sideways trade due to the uncertainty over Wednesday’s quarterly GDP report. It is expected to come in 0.6% higher, below the previously reported 0.9%.