AUD/USD and NZD/USD Fundamental Daily Forecast – Weak as Investors Shed Risky Currencies Ahead of Tariff Announcement

The Australian and New Zealand Dollars are trading lower early Wednesday amid concerns the trade dispute between the U.S. and China may be escalating. Investors are also lightening up on the long side of the U.S. Federal Reserve’s interest rate decision and monetary policy statement due to be released at 1800 GMT.

At 0445 GMT, the AUD/USD is trading .7406, down 0.0021 or -0.28% and the NZD/USD is at .6794, down 0.0023 or -0.33%.

The Aussie and Kiwi opened steady following a report from Bloomberg that the U.S. and China may restart official talks about their months-long trade dispute.

Bloomberg News reported, citing two sources that representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are in private talks to resume negotiations on trade matters in a bid to avoid a trade war. Mnuchin had told CNBC last week that “quiet conversations” with Beijing continued to take place.

Prices began to take a dive later in the session after a report surfaced stating that the Trump administration plans to propose slapping a 25-percent tariff on $200 billion of imported Chinese goods after initially setting them at 10 percent, in a bid to pressure Beijing into making trade concessions, a source familiar with the plan said on Tuesday.

The source also told CNBC that the Trump administration could announce the tougher proposal as early as Wednesday. The new plan more than doubles the tariff rate first reported by Bloomberg News on July 10.

In U.S. economic news on Tuesday, consumer spending in the U.S. rose by 0.4 percent in June, while personal income grew at the same rate. The Conference Board’s Consumer Confidence beat the estimate with a 127.4 reading.

In Australia, the AIG Manufacturing Index came in at 52.0, down from 57.4.

New Zealand released its employment report.

On a quarterly basis, employment added 0.5 percent – also topping expectations for 0.4 percent but down from 0.6 percent in Q1.

The unemployment rate came in at a seasonally adjusted 4.5 percent in the second quarter of 2018, Statistics New Zealand said on Wednesday. That exceeded expectations for a 4.4 percent reading, which would have been unchanged from the previous three months.

Overall employment in New Zealand was up 3.7 percent on year – topping forecasts for 3.6 percent and up from 3.1 percent in the three months prior.

Forecast

The Australian and New Zealand Dollars were settling into a range ahead of today’s Fed announcements when traders were hit with the news about additional tariffs on China. This triggered a sell-off in the Aussie and Kiwi as investors moved money into the safe haven U.S. Dollar. Since the Fed is not expected to raise rates or make any drastic changes to policy, the escalating trade dispute is likely to be the dominant theme today.

Traders will also have the opportunity to react to the latest U.S. data on ADP Non-Farm Employment Change, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, ISM Manufacturing Prices and Total Vehicle Sales.

The reports and the Fed are not likely to trigger much of a response in the markets unless the central bank really offers some surprised news. We expect most of the volatility to be triggered if Trump makes the tariff announcement today.