AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Minutes to Take Backset to Evergrande Contagion Fears

The Australian Dollar is edging higher against the U.S. Dollar early Tuesday, shortly ahead of the release of the Reserve Bank of Australia’s (RBA) policy meeting minutes at 01:30 GMT. The Aussie was under pressure the previous session as a stronger U.S. Dollar weighed down commodities and commodity-linked currencies. The catalyst behind the selling pressure was a looming catastrophe at indebted property giant China Evergrande.

At 0:55 GMT, the AUD/USD is trading .7254, up 0.0001 or +0.02%.

Aussie traders are extremely nervous because Evergrande is one of the major property owners in Australia. A forced liquidation of those properties to fulfil their debt obligations will put tremendous pressure on property and property-related stocks. It could also hurt the mortgage market and may even force the RBA to delay any tightening of policy. New liquidity from the central bank could become an option if the situation gets worse enough. All of these factors could weigh on the Australian Dollar.

RBA Minutes to Provide Little Help if Focus Remains on Threat of Evergrande Contagion

The RBA will on Tuesday release the minutes from its monetary policy meeting on September 7.  At the meeting, the RBA kept its key interest rate unchanged at a record low 0.10 percent and confirmed to taper its bond purchases.

AUD/USD traders seemed to have been slightly caught off guard by the RBA’s decision to taper its bond purchases at the policy meeting.

Although initially the Aussie Dollar jumped, it reversed course soon after. The Aussie spiked about 0.3 percent after the meeting but went on to trade 0.3 percent lower than before the RBA’s meeting.

After the policy announcement, a high-ranking RBA official said he expects the economy to “bounce back” from virus lockdowns as vaccination rates rise and as governments ease health restrictions, giving the central bank confidence to begin dialing back its $200 billion bond-buying stimulus.

RBA Governor Philip Lowe said after the bank’s monthly board meeting on Tuesday the lockdowns in NSW and Victoria would “delay”, but “not derail”, the economic recovery.

Dr. Lowe admitted there was uncertainty about the timing and pace of the bounce-back, and it was likely to be slower than earlier in the year.

“Much will depend on the health situation and the easing of restrictions on activity.”

Daily Forecast

Everything the RBA has to say in its minutes is expected to be downplayed due to the financial ramifications from the widely expected Evergrande property liquidation in Australia and the lingering impact of the move.

No one is certain how this situation will play out so there is no strong incentive to buy the AUD/USD at this time especially before the start of the Federal Reserve’s two-day meeting on Tuesday.

Traders are bracing for contagion and fallout from the Evergrande problem so rallies are likely to be sold until there is more clarity.