AUD/USD and NZD/USD Fundamental Daily Forecast – Rebounding after China Reports Drop in COVID Infections

The Australian and New Zealand Dollars are edging higher on Tuesday after stocks in Hong Kong led gains alongside Chinese indexes. The rebound in Asia and the Pacific Rim areas started when mainland China reported the first decline in daily COVID infections in more than a week on Monday.

The country said local infections, mostly asymptomatic, totaled 38,421, down from a record high of 40,052 reported for Sunday, according to CNBC calculations of Wind Information data.

The last time the daily case count fell from the prior day was on November 19, the data showed.

Additionally, there was no indication of new protests on Monday. Over the weekend, students and groups of people across China held public demonstrations to protest the country’s stringent zero-COVID policy.

At 04:45 GMT, the AUDUSD is trading .6702, up 0.0050 or +0.75% and the NZD/USD is at .6209, up 0.0044 or +0.71%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $65.80, down $0.96 or -1.44%.

Both the Aussie and Kiwi have recovered more than half of yesterday’s plunge that was fueled by concerns about unrest over COVID restrictions in China and as hawkish Federal Reserve officials laid out the case for further rate hikes.

NZ Faces ‘Shallow’ Recession as Rates Need to Rise More – Senior Central Banker

New Zealand is likely facing a “shallow” recession as interest rates need to rise further to tame inflation, a top central banker said on Monday, suggesting that a pause in the policy tightening streak was still a distant prospect, Reuters reported.

In an interview, Reserve Bank of New Zealand (RBNZ) Assistant Governor Karen Silk said the central bank would be closely monitoring high frequency data including on spending, business investment and housing when deciding on how much to hike rates when it next meets in February.

Silk said the projected 1% decline in gross domestic product over four quarters would be a “relatively shallow and technical” recession, partly reflecting a weaker global growth outlook.

RBA’s Lowe Sees Better Chance of Australia ‘Soft Landing’ Than Peers

Australia has a stronger probability of bringing its economy in for a “soft landing” than almost any other developed-world counterpart, Reserve Bank Governor Philip Lowe said, citing the nation’s still-contained wage growth, Bloomberg reported.

“It’s not guaranteed but where I sit today I think we have a better chance than most other countries of pulling it off,” Lowe told a parliamentary panel in Canberra on Monday. The best outcome for Australia would be for wages to pick up as they have, but not go too much further, he said.

Short-Term Outlooks

AUDUSD and NZD/USD traders are likely to continue to respond to the friendly news out of China regarding the drop in COVID infections. Prices are likely to remain firm, but we could see an even stronger rally if the news develops into a trend.