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AUD/USD and NZD/USD Fundamental Daily Forecast – China’s Xi Speech Could Set Tone, RBA Warns About Housing Correction

James Hyerczyk
The AUD/USD and NZD/USD could continue to firm if the speech by Xi hints at a desire to work with the U.S. on trade issues. However, I don’t think investors are going to be willing to commit to either side in a big way ahead of the Fed’s interest rate and monetary policy decisions on Wednesday.

The Australian and New Zealand Dollars are trading higher early Tuesday as investors await a key speech from China’s President Xi Jinping. The Aussie Dollar is also being underpinned by some RBA data. Furthermore, we could be looking at position-squaring ahead of the start of the U.S. Federal Reserve’s two-day meeting.

At 0254 GMT, the AUD/USD is trading .7192, up 0.0014 or +0.20% and the NZD/USD is at .6847, up 0.0042 or +0.62%.

Chinese President Xi Jinping’s Speech

Aussie and Kiwi investors are looking to a major speech by President Xi Jinping on Tuesday to mark the 40th anniversary of China’s market reforms.

According to reports, Chinese President Xi Jinping is expected to signal on Tuesday whether his idea of progress aligns with the West’s increasingly vocal demands for less state control. That could have significant consequences for whether the U.S. reaches a trade deal with China by the end of its 90-day tariff ceasefire.

Reserve Bank of Australia Meeting Minutes

In the minutes from its early-December meeting, the RBA reiterated that the next move in interest rates was more likely to be up than down, but said there was no strong case for a near-term adjustment in the cash rate, which remains at a historic low of 1.5 percent.

The RBA minutes also indicated the Australian economy was continuing to perform well, despite the housing and consumption headwinds with gross domestic product (GDP) growth expected to track above 3 percent and the 5 percent jobless rate lifting hopes that wages growth will gradually recover.

RBA Minutes Highlighted Economic Risks

The RBA minutes showed that falling household consumption, fueled by declining real estate values and high debt levels, is a key source of uncertainty for the Australian economy, the RBA warned.

In the minutes, RBA policymakers noted evolving headwinds as “this combination of factors posed downside risks”.

“Lending to investors had remained very weak and growth in lending to owner-occupiers has continued to ease….credit conditions were tighter than they have been for some time,” the RBA wrote in its minutes.

“The focus on responsible lending obligations in response to the royal commission…was likely to have reduced some lenders’ appetite for lending to both households and small businesses.”

Forecast

The AUD/USD and NZD/USD could continue to firm if the speech by Xi hints at a desire to work with the U.S. on trade issues. However, I don’t think investors are going to be willing to commit to either side in a big way ahead of the Fed’s interest rate and monetary policy decisions on Wednesday.

This article was originally posted on FX Empire

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