AUD/USD and NZD/USD Fundamental Daily Forecast – Up on Short-Covering as Investors Eye Impact of Coronavirus

The Australian and New Zealand Dollars are trading higher on Monday, driven by short-covering after last week’s steep declines. Some traders are blaming oversold technical conditions for the counter-trend strength, but the moves are likely being fueled by optimism that the economic fallout from the coronavirus will be contained.

CNBC says both currencies may have been lifted a little on Monday amid some early signs that the spread of the coronavirus epidemic could be slowing down and as some big businesses resumed work in China after the Lunar New Year holiday.

At 09:45 GMT, the AUD/USD is trading .6694, up 0.0017 or +0.26% and the NZD/USD is at .6412, up 0.0011 or +0.17%.

The big event this week is the Reserve Bank of New Zealand (RBNZ) interest rate and monetary policy decisions. In Australia, Reserve Bank of Australia (RBA) Governor Lowe is scheduled to give another speech.

RBNZ to Hold Rates Steady, But Coronavirus Risks Could Bring Early Rate Cut

New Zealand’s central bank is all but certain to hold rates at record lows of 1.0% at its policy review next week as domestic risks dissipate, but an easing could come soon, not least because a virus epidemic in China has raised growth risks, according to Reuters.

At its first meeting of the year on February 12, the Reserve Bank of New Zealand (RBNZ) is likely to take comfort from a stabilizing economy as it delivered 75 basis points of easing last year.

The rate cuts helped lift inflation in the previous quarter closer to the 2% midpoint of RBNZ’s 1-3% target range, while the unemployment rate dropped.

In a Reuters poll, all 12 economists expected central bank to hold rates until the end of March, and only three predicted a cut by the end of June. Many economists are predicting at least one rate cut before the end of the year.

Although the RBNZ can afford to sit on the sidelines for now, the central bank will closely watch the global growth risks emanating from the rapidly-spreading coronavirus epidemic in China, ANZ Chief Economist Sharon Zollner said.

“They will acknowledge the human impact of the tragic new coronavirus, with cautious language about possible risks to the economic outlook,” she said.

Australia’s central bank held its cash rate last week and sounded doggedly optimistic even as markets bet devastating bushfires at home and China’s virus would force aggressive easing.

Daily Forecast

China’s factory-gate prices snapped six months of year-on-year declines in January, however, Aussie and Kiwi traders showed a limited response to the news because due to the coronavirus outbreak, the positive momentum is unlikely to persist. China’s mini-cycle is likely to be delayed, but not derailed.

We may have seen the range for the day in the AUD/USD and NZD/USD since there aren’t any economic reports from the U.S. later today. Furthermore, gains are likely to be capped if hedgers continue to treat the U.S. Dollar as a safe-haven asset.