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James Hyerczyk

The Australian and New Zealand Dollars are trading higher on Thursday as a further easing of tensions between the United States and China continued to drive weaker shorts out of the market. Traders are now waiting to hear from the European Central Bank (ECB) at 11:45 GMT to see if it will provide enough stimulus to trigger another surge in demand for higher risk currencies that would encourage further short-covering in the Aussie and Kiwi.

At 09:08 GMT, the AUD/USD is trading .6882, up 0.0019 or +0.27% and the NZD/USD is at .6437, up 0.0023 or +0.35%.

The catalyst behind the early strength is a tweet from President Trump saying he will delay increasing tariffs on $250 billion worth of Chinese goods from October 1 to October 15 as a “gesture of good will” to China.

This potentially bullish news comes shortly after Treasury Secretary Steven Mnuchin said the U.S. and China have a “conceptual” agreement on enforcement concerns, emphasizing positive progress already made in trade talks, which are set to resume at high levels next month.

Reports from Politico and South China Morning Post, said China is expected to agree to buy more American agricultural products in hopes of a better trade deal with the United States as the two nations prepare for a meeting between their top negotiators next month.

NAB Changes RBA Interest Rate Forecast

Despite the recent developments in the global marketplace, National Australia Bank (NAB) changed its outlook for interest rates. This is a potentially bearish development that should help to limit gains in the AUD/USD.

“We have changed our call on monetary policy. Previously we expected a cut in November to 0.75%, together with additional fiscal stimulus. We now expect a further cut to 0.5% in February, at which point the Reserve Bank would outline its plans on unconventional policy. Unless the government delivers a meaningful fiscal stimulus, a further cut to 0.25% by mid-2020 is likely, along with the adoption of nonconventional monetary policy measures,” says Alan Oster, chief economist at NAB.


Daily Forecast

Keep in mind that the Australian and New Zealand Dollars are being driven higher by short-covering and some aggressive counter-trend speculative buying. We could see further short-term upside action in the AUD/USD and NZD/USD until global risk aversion returns.

Today’s European Central Bank (ECB) interest rate and monetary policy decisions could drive the AUD/USD and NZD/USD even higher if they come out with an extremely dovish stimulus package. This could drive global equity markets higher, driving up demand for higher risk currencies.

In the U.S., investors will get the opportunity to react to the latest data on consumer inflation. Traders are looking for an increase of 0.1%. Core CPI is expected to have risen 0.2%.

The CPI report shouldn’t be an issue to the Fed since the market has already decided the central bank will cut its benchmark rate 25-basis points at next week’s policy meeting. A stronger than expected report will likely be addressed in next week’s policy statement. It could have an impact on whether the Fed makes a third cut in December.

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