AUD/USD and NZD/USD Fundamental Daily Forecast – Underpinned by Robust Chinese Economic Data

The Australian and New Zealand Dollars are trading higher on Monday as investors react to stronger-than-expected economic data from China, while continuing to digest the trade deal between the United States and China that was announced on Friday. There is some uncertainty over the details of the trade agreement which may be limiting gains. Furthermore, traders are exhibiting caution ahead of key domestic reports later this week.

At 10:08 GMT, the AUD/USD is trading .6883, up 0.0007 or +0.10% and the NZD/USD is at .6608, up 0.0017 or +0.26%.

China’s Factory, Retail Sectors Exceed Expectations

Growth in China’s industrial and retail sectors beat expectations in November, as government support propped up demand in the world’s second-largest economy and amid easing trade hostilities with Washington.

Industrial Production rose 6.2% year-on-year in November, data from the National Bureau of Statistics showed, beating the median forecast of 5.0% growth in a Reuters poll and quickening from 4.7% in October. It was also the fastest year-on-year growth in five months.

Retail sales rose 8.0% year-on-year in November, compared with an expected 7.6%, buoyed by stimulus measures and the November Singles Day shopping extravaganza, the statistics bureau said.

Fixed Asset Investment showed few signs of improvement, growing 5.2% from January-November, in line with the increase seen in the first 10 months, which was the weakest in decades.

Infrastructure investment growth, a key driver of activity, slowed to 4.0% in January-November in the first 10 months.

Traders Having Issues with Trade Deal

U.S. and Chinese officials announced on Friday that the two economic powerhouses had reached a phase one agreement after a combative 18-month trade war. The details are a little sketchy, but it looks as if China agreed to billions of dollars in agricultural purchases from the U.S., while U.S. President Trump vowed to not pursue a new round of tariffs that had been scheduled for Sunday. The two major economies plan to sign the partial accord in the first week of January.

U.S. Trade Representative Robert Lighthizer said on Sunday that the phase one U.S.-China trade deal reached on Friday is “totally done,” and it will nearly double U.S. exports to China over the next two years.

Australian Economic Data

Australian Flash Manufacturing came in at 49.4, below the previously reported 49.9. Flash Services PMI was 49.5, slightly below the previously reported 49.7.

Australia’s mid-year budget update showed economic reality is starting to bear down on the government’s finances.

The Australian Treasury lowered its forecast surplus for the 12 months through June 2020 to A$5 billion ($3.4 billion) from April’s budget estimate of A$7.1 billion as it scaled back estimated tax revenues, according to the Mid-Year Economic and Fiscal Outlook released in Canberra Monday. It also predicted narrower surpluses for the following three fiscal years.

Treasurer Josh Frydenberg also cut his forecasts for gross domestic product and wages growth this fiscal year, though dismissed concerns about the slowing economy and resisted calls for additional spending to support growth.

Daily Forecast

The reaction by the Aussie and Kiwi to the trade deal news has been mixed with many analysts advising caution. Some critics noted several shortcomings in the trade deal that was announced between the world’s two largest economies on Friday. Top among them were a lack of specifics on farm purchase commitments and enforcement mechanisms, a shortage of trust on both sides and U.S. President Donald Trump’s mercurial negotiating style.

These concerns could continue to weigh on gains on Monday. However, the solid economic data from China is likely to underpin prices. Therefore, we could be looking at a sideways trade today.

Furthermore, we could see some position-squaring in the Australian Dollar due to the release of the Monetary Policy Meeting Minutes from the RBA on Tuesday. New Zealand Dollar traders could lighten up their positions in anticipation of the ANZ Business Confidence report.

In the U.S. on Monday, investors will get the opportunity to react to the latest data on the Empire State Manufacturing Index, Flash Manufacturing PMI, Flash Services PMI and NAHB Housing Market Index.

Flash Manufacturing PMI is the major report. It is expected to come in unchanged at 52.6. The Aussie and Kiwi could break if the number is stronger-than-expected. The two currencies could be underpinned by a weaker-than-expected number.