AUD/USD and NZD/USD Fundamental Weekly Forecast – US-China Trade Developments Should Have Positive Influence

The Australian and New Zealand Dollars finished sharply higher last week. The catalyst behind the rally was dovish remarks from Federal Reserve Chair Jerome Powell. Gains were limited by concerns over U.S.-China trade relations that sent investors into the safe-haven U.S. Dollar. Over the week-end, conditions changed to more favorable for the Aussie and Kiwi.

Last week, the AUD/USD settled at .7313, up 0.0079 or +1.09% and the NZD/USD finished at .6882, up 0.0102 or +1.50%.

The AUD/USD and NZD/USD surged last week, following cautious remarks from Powell which created fresh doubt about the pace of rate hikes from the U.S. Federal Reserve next year. This news drove U.S. Treasury yields lower, while pressuring the greenback.

However, later in the week, the rally by the Aussie and Kiwi stalled as investors sought shelter in the safe-haven U.S. Dollar due to concerns that the trade dispute between the United States and China may be escalating.

Forecast

Overall, the news over the week-end was good so we expect the AUD/USD and the NZD/USD to pick up their rallies where they left off last week now that some of the trade dispute fears have been lifted.

The fear of an escalation of the trade dispute was put to bed over the week-end when U.S. President Donald Trump and Chinese President Xi Jinping found some common ground at their crucial meeting at the G20 summit in Argentina, agreeing to put their bilateral trade dispute on pause momentarily. According to reports, they struck a deal to hold off on placing additional tariffs on each other’s goods after January 1, while agreeing to continue talks for a permanent end to the major issues.

The Whitehouse reported that Trump and Xi discussed a range of issues including the trade dispute that has left over $200 billion worth of goods hanging in the balance.

“President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent at this time,” the statement read.

“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent,” the statement added.

In the meantime, “China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately,” the White House said.

This news should be bullish for the Australian and New Zealand Dollar since both are major trading patterns with China. Additionally, it should encourage those investors who bought the U.S. Dollar as a hedge to reduce those positions. This should also help support higher prices for the Aussie and the Kiwi.

In Other News…

Investors have a lot on their plate this week with both Australia and the United States presenting a slew of economic data.

In Australia, investors will get the opportunity to react to the Reserve Bank of Australia’s latest interest rate decision and rate statement. There’s also a retail sales report.

In the U.S., investors will get the opportunity to react to major reports including ISM Manufacturing PMI, ISM Non-Manufacturing PMI and the U.S. Non-Farm Payrolls report.

Additionally, U.S. Federal Reserve Chairman Jerome Powell is scheduled to testify before Congress and deliver a speech.