AUD/USD and NZD/USD Fundamental Daily Forecast – Risk-Off Trade Pressuring Aussie, Kiwi

Renewed selling in China is driving the Australian Dollar sharply lower early Tuesday. Traders returned from holiday in New Zealand to face a wall of selling pressure also.

The past two sessions, the Aussie and the Kiwi had been somewhat supported by a two-day turnaround in China’s Shanghai Composite and China’s Shenzhen Composite stock indexes, but the rally came to an abrupt halt on Tuesday suggesting it was fueled by short-covering rather than aggressive counter-trend buying.

At 0637 GMT, the AUD/USD is trading .7066, down 0.0016 or -0.23% and the NZD/USD is at .6549, down 0.0004 or -0.07%.

The Australian Dollar is getting hit the hardest because it is considered by investors to be a proxy for China’s economy since Australia is a major trading partner of the world’s second largest economy.

On Tuesday, the Greater China markets were trading lower. Hong Kong’s Hang Seng index fell 2.03 percent while China’s Shanghai Composite and Shenzhen Composite declined 1.37 percent and 1.229 percent respectively.

In other news, Reserve Bank of Australia Governor Guy Debelle has been active on the speakers’ circuit. Earlier today, he said that the RBA refraining from raising rates has been a good thing. He argued that stable interest rates have given businesses and households certainty and confidence to borrow and invest or spend.

Forecast

It’s another light day as far as economic data is concerned. The U.S. is set to release the Richmond Manufacturing Index at 1400 GMT. It is expected to come in lower at 25, down from 29. FOMC Member Bostic is also scheduled to speak. Investors will react to his speech only if it deals with monetary policy.

In the meantime, demand for risky assets will drive the price action on Tuesday. Currently, it looks like it is going to be a risk-off session, which means lower demand for the higher-yielding Australian and New Zealand Dollars.

If sellers continue to press China’s stock market lower along with the major U.S. indices then we are likely to revisit prices seen last week.

The New Zealand Dollar is having trouble with the .6562 to 6595 range. This is drawing the attention of sellers. Its first downside target is .6515 to .6493.

The downside momentum in the Australian Dollar is likely to drive the currency into its recent main bottom at .7042. If sellers take out this level with conviction then the move could extend into the February 9, 2016 main bottom at .6973.