AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured by Weak Chinese Data, Rising U.S. Treasury Yields

A recovery by the U.S. Dollar due to higher U.S. Treasury yields is helping to drive the currency higher against the Australian and New Zealand Dollars. The catalyst behind the rally is confidence in diplomatic efforts by Russia and China to diffuse the U.S.-North Korean crisis.

At 0930 GMT, the AUD/USD is trading .7874, down 0.0016 or -0.21% and the NZD/USD is at .7295, down 0.0016 or -0.23%.

The Russia-China plan would have North Korea freeze missile tests and for the U.S. and South Korea to stop large scale military exercises.

With the situation between the United States and North Korea temporarily stalled, Australian and New Zealand Dollar traders are showing a delayed reaction to a series of weaker-than-expected economic data from China.

China’s factory output in July grew 6.4 percent from a year earlier, while fixed-asset investment expanded 8.3 percent in the first seven months, both below economists’ forecasts. Retail sales in China in July also rose less than expected.

Yearly Industrial Production rose 6.4%, but missed the 7.1% forecast while coming in below the 7.6% estimate. Yearly Fixed Asset Investment was up 8.3%, also below the 8.6% forecast and the previous read. Yearly Retail Sales were up 10.4%, but this also missed the 10.9% estimate and 11.0% previous read.

In New Zealand, Retail Sales came in at 2.0%, higher than the previous 1.6%. Core Retail Sales were 2.1%, higher than the upwardly revised 1.5%. This news didn’t help the Kiwi to rally, but it may have limited some of the selling pressure.

Forecast

The trading range for the Australian Dollar may tighten a little as the Forex session unfolds due to early Tuesday’s release of the Reserve Bank of Australia Monetary Policy Minutes. Traders are hoping the minutes reveal more information about the RBA’s plan to hold interest rates unchanged for a long time. Additionally, investors want to know what measures the central bank is willing to take to keep the value of its currency under pressure.

Both the AUD/USD and NZD/USD could be under pressure because of the easing of tensions between the U.S. and North Korea, however, losses are likely to be limited because of last week’s weaker-than-expected U.S. producer price index data and disappointing U.S. consumer inflation data. Both bits of news have reduced the chances of a Fed rate hike later this year.

Australian Dollar buyers are clearly defending the key low at .7786 which falls inside a major retracement zone at .7818 to .7760 which has been identified as a value area.

New Zealand Dollar sellers could lighten up on the pressure as the market approaches the last main bottom at .7201. If this level fails as support then look for a possible test of the major retracement zone at .7187 to .7100.