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AUD/USD and NZD/USD Fundamental Daily Forecast – Traders Remain Optimistic About Fresh Chinese Stimulus

By:
James Hyerczyk
Published: Jan 16, 2019, 07:42 UTC

The AUD/USD and NZD/USD could remain in a range on Wednesday, underpinned by the hopes that China will soon announce a stimulus package. As noted on Tuesday, traders will be particularly sensitive to any positive or negative comments about a potential trade deal between the U.S. and China.

AUD/USD and NZD/USD

The Australian and New Zealand Dollars are trading mixed early Wednesday. Volume and volatility are below average with the lack of fresh domestic data to blame. Investors are also being held hostage by the lack of progress in U.S.-China trade talks after last week’s strong performance.

Earlier in the week, the Aussie and Kiwi were pressured by weaker-than-expected trade balance data. However, these losses were recovered. On Tuesday, traders were encouraged by the possibility of new stimulus from China, but some of this excitement wore off following negative comments about U.S-China trade relations from a U.S. official.

At 0706 GMT, the AUD/USD is trading .7207, up 0.0004 or +0.04% and the NZD/USD is at .6826, up 0.0009 or +0.12%.

The Australian and New Zealand Dollar edged higher on Tuesday, helped by increased speculation over the prospect of further Chinese economic stimulus. Both currencies also tracked the movement in the Chinese Yuan which posted a two-sided trade before moving higher.

“The People’s Bank of China (PBoC) indicated that the Chinese Yuan exchange rate is no longer constraining the central bank’s reserve requirement ratio (RRR) cuts, implying that interest rate cuts could be in the policy toolkit if the economy deteriorates, and disclosed higher-than-market-expected loan growth in December,” said analysts at Credit Suisse.

“China Ministry of Finance (MoF) and National Development and Reform Commission (NDRC) confirmed the announcement of a value-added tax (VAT) cut at the March National People’s Congress and pledged to accelerate infrastructure investment.

“We think the weaker-than-expected December economic data has added a new sense of urgency in policymakers to rekindle growth. We expect a higher quota for local government special bond issuance, an 400-600 billion yuan VAT cut, more specific pro-consumption measures, and a further 300 basis point RRR cut.”

The Aussie Dollar received further help after it was reported that Chinese loan growth in December exceeded market expectations, helping to bolster confidence that economic activity will stabilize.

Softer U.S. economic data may have also helped bolster the Aussie and Kiwi. A government report showed U.S. Producer Prices fell 0.2% in December. The Empire State Manufacturing Index came in at 3.9, below the 11.6 forecast.

Late in the session, the Aussie and Kiwi gave back some of their earlier gains amid worries about U.S.-China trade. Senator Chuck Grassley said Tuesday that U.S. Trade Representative Robert Lighthizer saw little progress in last week’s talks with China.

In other news, early Wednesday, Australia’s Westpac Consumer Sentiment came in at -4.7%, lower than the previously reported 0.1%.

Forecast

The AUD/USD and NZD/USD could remain in a range on Wednesday, underpinned by the hopes that China will soon announce a stimulus package. As noted on Tuesday, traders will be particularly sensitive to any positive or negative comments about a potential trade deal between the U.S. and China.

Traders will also get the opportunity to react to fresh U.S. data including Import Prices, the NAHB Housing Market Index and the Fed’s Beige Book. Soft data will continue to underpin the Aussie and Kiwi because it will support the notion that the Fed will pause in making anymore rate hikes until the economy strengthens.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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