AUD/USD and NZD/USD Fundamental Daily Forecast – Sluggish Trade, but Supported by Rising Risk Sentiment

The Australian and New Zealand Dollars are putting in a mixed performance early Tuesday as traders continue to enjoy the extended Christmas holiday break.

Despite increasing demand for riskier assets and safe-haven selling of the U.S. Dollar, the Aussie and Kiwi are struggling as Omicron coronavirus variant cases rise in Australia. This is raising concerns over the ability to contain the virus while sustaining economic growth.

At 07:32 GMT, the AUD/USD is trading .7242, up 0.0002 or +0.02% and the NZD/USD is at .6815, down 0.0003 or -0.04%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $71.72, down $0.20 or -0.28%.

Australia COVID Numbers Hit Peak as Omicron Outbreak Strains Domestic Politics

Australia recorded another record surge in COVID-19 infections on Tuesday as an outbreak of the highly infections Omicron variant disrupted reopening of the economy, while state leaders argued over domestic border controls.

The country reported 11,264 new cases of the coronavirus in the previous day, according to a Reuters calculation of state figures, once again surpassing its peak of a day earlier, as it grapples with a planned reopening while the new variant rages.

China Set to Ease Monetary Policy Further Says Strategist David Roache

Monetary policy in China is set to ease as the government continues to focus on stability and the theme of “common prosperity,” veteran investment strategist David Roche said on Monday.

Common prosperity refers to the Chinese government’s aim to generate moderate wealth for all, in response to the widening rich-poor gap that has emerged in the country.

In order to achieve that, Beijing is likely to cut lending rates further, inject money into banks to lend to small and medium enterprises as well as ensure that troubled property developers deliver on their projects, Roche, president and global strategist at Independent Strategy, told CNBC’ “Squawk Box Asia” on Monday.

“Those are the measures I’d expect we will see a lot more of, because the economic figures are bad, and that’s bad for the [Communist] Party,” he said.

The government will prioritize stability, said Roche.

“The kind of ideological ‘common prosperity’ themes will not go on the back burner,” he added.

Short-Term Outlook

Increasing demand for riskier currencies and a further liquidation of the safe-haven U.S. Dollar should continue to underpin the AUD/USD and NZD/USD. But we may not see another surge to the upside until volume picks up after the bank holidays. Gains could be limited, however, if domestic politics over Omicron restrictions, and travel and border policies become an issue.