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James Hyerczyk

The Australian and New Zealand Dollars are trading mixed on Monday with the Aussie trading lower in reaction to weaker-than-expected domestic data, and the Kiwi following closely after giving back most of its earlier gains. The trade slow as investors prepare for the release of the Reserve Bank of Australia rate statement on Tuesday. Furthermore, Japan is on bank holiday so volume is well-below average.

At 11:35 GMT, the AUD/USD is trading .6909, down 0.0004 or -0.06% and the NZD/USD is at .6434, up 0.0006 or +0.09%. This is down from an intraday high of .6466.

Trade Deal Hopes Provide Support

Early in the session, both currencies were supported by optimism over the progress of the U.S.-China trade negotiations. This stems from upbeat comments late Friday that suggested the two economic powerhouses were moving toward completing Phase One of a partial trade deal.

The Chinese Ministry of Commerce said Vice Premier Liu He had a phone call with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Friday.  It said the two sides conducted “serious and constructive” discussions on “core” trade points and talked about arrangements for the next round of talks.

The White House said in a statement Friday that the trade representatives “made progress in a variety of areas and are in the process of resolving outstanding issues. Discussions will continue at the deputy level.”


Fading Rate Cut Expectations Driving Upside Price Action

The Aussie and Kiwi have been rallying lately due to a Fed rate cut, and expectations the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) were likely to stay on the sidelines as they await the impact of recent aggressive stimulus measures.

Last week, Westpac Bank analysts changed their minds and said they did not expect the RBNZ to cut rates at their November 13 meeting. This triggered a surge in the New Zealand Dollar.

Daily Forecast

Weak domestic data from Australia and general uncertainty ahead of Tuesday’s RBA policy meeting are likely to keep a lid on the AUD/USD and NZD/USD the rest of the session on Monday.

Earlier in the session, a report showed Australian retail sales surprisingly fell last quarter while growth in September was weaker-than-expected, underlining the need for even more stimulus to jumpstart the slowing economy.

Retail sales inched up 0.2% in September after a respectable 0.4% gain in August, figures from the Australian Bureau of Statistics (ABS) showed on Monday. Analysts polled by Reuters had expected an increase of 0.5%.

In another worrying sign for the economy, separate data on Monday showed Australian job advertisements in the newspapers and on the internet fell 1% in October to the lowest level in more than 2-1/2 years.

The drop in retail sales underlines that the RBA still has work to do. The data suggests the RBA will have to cut interest rates by more than most anticipate. Furthermore, some economists are speculating the need for unconventional policy measures or quantitative easing (QE) such as bond purchases or discounted lending to banks.

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