The Australian and New Zealand Dollars are trading sharply higher on Thursday, boosted by solid domestic data and good geopolitical news over Brexit. Both currencies are also responding to positive economic news out of China. Prices could climb even further if the U.S. Dollar begins to weaken on position-squaring ahead of Friday’s U.S. Non-Farm Payrolls report.
The Aussie Dollar is moving higher on Thursday after the country’s trade surplus rose to nearly a two-year peak in September helped by a huge run in resource exports.
Data from the Australian Bureau of Statistics (ABS) showed the country’s trade surplus climbed to $3.02 billion Australian Dollars, beating the $1.7 billion Australian Dollars forecast. The news drove the third quarter surplus to $6.4 billion Australian Dollars, almost three times the size of the second quarter’s $2.2 billion Australian Dollars.
Additional data showed export prices for the third quarter ending in September jumped 3.7 percent while import values surged 1.9 percent.
The New Zealand Dollar was supported somewhat by the surge in the Australian Dollar and on the back of the solid economic data. However, the Kiwi’s biggest gains came amid broader U.S. Dollar selling related to a report that British Prime Minister Theresa May had struck a deal with the European Union on financial services. This would give these companies continued access to European markets after Brexit, the report said.
In other news, Australian Government bonds fell, with the three-year bond contract and the 10-year note contract down 3 ticks at 97.920 and 97.335 respectively.
New Zealand Government bonds also eased, sending yields about 2-3 basis points higher against the curve.
The news out of China was not that bad early Thursday. China’s manufacturing sector barely grew last month after stalling in September, a private survey showed, while an extended order contraction in export orders highlighted rising pressure on the economy as a trade dispute with the U.S. escalated.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for October, edged up to 50.1 from 50.0 in September. Economists were looking for a reading of 49.9.
In the U.S., investors will get the opportunity to react to a number of reports including the Challenger Job Cuts, Preliminary Non-Farm Productivity, and Preliminary Unit Labor Costs.
Construction spending is expected to show a 0.02% increase versus a 0.1% estimate and Total Vehicle Sales are expected to come in at 17.1M versus 17.4M.
The major reports are Weekly Unemployment Claims and ISM Manufacturing PMI. Weekly Jobless Claims are expected to come in at 213K, down slightly from last week’s 215K reading.
ISM Manufacturing PMI is estimated to have fallen to 59.0 from 59.8.
The rallies in the Aussie and Kiwi were likely long overdue and are probably being fueled by aggressive short-covering and position-squaring since the primary driver of the price action lately has been the divergence between the hawkish U.S. Federal Reserve and the dovish Reserve Bank of Australia and Reserve Bank of New Zealand.
Additionally, China’s economy is pretty fragile at this time which may mean Beijing will have to back it with further stimulus support in order to try to prevent a sharp downturn for the economy.
Despite the strong performances in the Aussie and Kiwi, their central banks are highly unlikely to change policy over the near-term. The RBA is still concerned over the lack of inflation, while the RBNZD deals with low business confidence and the potential for a rate cut.
This article was originally posted on FX Empire
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