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AUD/USD and NZD/USD Fundamental Daily Forecast – Trade Deal Hopes Raised by Unexpected Third Day of Trade Negotiations

James Hyerczyk
Hopes over a US-China trade deal have been raised by the news that both economic powerhouses will continue high level talks for an unscheduled third day on Wednesday.

The Australian and New Zealand Dollars are trading higher early Wednesday while attempting to reverse yesterday’s losses. The early price action suggests that the Aussie has taken over the leadership of the two currencies. This is because it stands to gain the most if the U.S. and China reach an agreement on trade. Hopes over a deal have been raised by the news that both economic powerhouses will continue high level talks for an unscheduled third day on Wednesday.

At 0338 GMT, the AUD/USD is trading .7159, up 0.0019 or +0.25% and the NZD/USD is at .6753, up 0.0030 or +0.44%.

The Australian Dollar, which is often seen as a proxy for Chinese growth because it is the world’s second largest economy’s biggest customer, is currently trading at a 3-week high.

Both the Aussie and Kiwi are also being supported by increased demand for commodities, which are being underpinned by China’s decision last Friday to cut the reserve requirements for all banks. This is expected to provide stimulus and liquidity for the economy.

In economic news, the Australian Dollar is also recovering from Tuesday’s weakness that was fueled by weaker than expected Trade Balance data. The Australian trade balance for November came in at $1.93 billion, lower than the $2.18 billion forecast. The October figure was also revised lower to $2.01 billion.

Earlier today, the AIG Services Index came in at 52.1, down from 55.1. Building Approvals fell 9.1%, worse than the -0.3% estimate and the -1.5% previous read.

New Zealand has been quiet this week. Earlier in the session, the ANZ Commodity Prices report came in 0.2% lower. This followed a 0.5% drop last month.

In the U.S. on Tuesday, the NFIB Small Business Index rose to 104.4, higher than the 103.1 forecast. JOLTS Job Openings fell unexpectedly to 6.89 million. Traders were looking for 7.07 million. Consumer Credit rose to $21.1 billion, beating the $17.3 billion forecast. However, the previous month was revised down to $25.0 billion from $25.4 billion.

Forecast

On Wednesday, the primary focus for Aussie and Kiwi traders will remain the US-China trade negotiations. Today’s early price action indicates traders are betting on a positive outcome.

At 1400 GMT, traders will get the opportunity to react to a speech by FOMC Member Charles Evans. At 1630 GMT, FOMC Member Eric Rosengren will also deliver remarks.

The major event is the release of the Fed’s December meeting minutes at 1900 GMT. The minutes could move the markets especially if they offer clues as to the timing and the number of interest rate hikes in 2019. To some, the information in the minutes will be stale news since Federal Reserve Jerome Powell reversed his hawkish tone on Friday when he said the central bank will be patience when considering rate hikes this year and slow down the process of reducing its balance sheet.

This article was originally posted on FX Empire

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