AUD/USD and NZD/USD Fundamental Daily Forecast – Trading Higher as China Relaxes Some Virus Rules

The Australian and New Zealand Dollars are edging higher on Monday as China relaxed virus testing rules in some cities, signaling more easing may come in the nation, which has been under strict COVID-related restrictions for more than two years.

A rise in the Chinese Yuan also helped underpin the Aussie and Kiwi. Australia and New Zealand are two of China’s largest trading partners and thus have a strong positive correction to China’s Yuan. The outlook for China is often tied to the outlook of Australia, with the Aussie Dollar considered by some foreign exchange analysts to be a more liquid proxy for exposure to China.

The Australian and New Zealand Dollars are likely to garner continued support if China’s easing of its COVID-related restrictions escalates. The move would help to alleviate some of the worries over China demand and the possibility of a global recession.

At 02:26 GMT, the AUD/USD is trading .6829, up 0.0034 or +0.49% and the NZD/USD is at .6425, up 0.0015 or +0.24%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $67.35, down $0.05 or -0.08%.

Aussie, Kiwi Traders Shrug-Off Drop in China’s Services Activity

Australian and New Zealand Dollars are showing little reaction to a weaker-than-expected China Services report, choosing instead to concentrate on the potential easing of COVID restrictions.

The Caixin/S&P Global Services Purchasing Managers’ Index for November came in at 46.7, representing the lowest reading in six months.

The print also marks the third consecutive month of contraction in output and new work, after October’s reading came in at 48.4, while September’s print was 49.3.

“The rate of decline was solid overall, but remained weaker than the falls seen during the previous major wave of COVID-19 cases from March to May,” Caixin said in a release.

“Efforts to curb the spread of COVID-19 amid a notable rise in case numbers in recent weeks, weighed on service sector business operations and customer demand across China during November,” it added.

Australian Construction Jumps, New Zealand Commodity Prices Dip

In economic news, the AIG Construction Index rose to 48.2, up from 43.3. The MI Inflation Gauge came in at 1.0%, up from 0.4% and a report on Company Operating Profits showed a loss or 12.4%, worse than the -1.5% forecast. The previous quarter’s report showed an upwardly revised 7.8% gain.

In New Zealand, the ANZ Commodity Prices Index fell 3.9%, worse than the previously reported -3.4%. New Zealand’s commodity exports took a hit in November, with weaker prices made worse by a rampant Kiwi Dollar, ANZ said.

Short-Term Outlook

The early price action suggests investors aren’t worrying about Friday’s hotter-than-expected U.S. Non-Farm Payrolls report that is indicating to some that the Federal Reserve may have to continue to raise rates aggressively to tame the strength in the labor market in an effort to reduce inflation.

The bigger story on Monday is China’s easing of COVID restrictions. This news could increase demand from China and possibly prevent a global recession.

Australian Dollar traders are also positioning themselves ahead of Tuesday’s Reserve Bank (RBA) rate statement and interest rate decision.

The RBA will meet for the final time this year to decide whether or not it will hike interest rates again.

Traders are expecting the RBA to deliver at least one more hike. Another 25 basis point increase would take the rate to 3.1 percent and cause more pain for mortgage holders.