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AUD/USD and NZD/USD Fundamental Daily Forecast – Weak Global Economic Forecasts Weighing on Aussie, Kiwi

The Australian and New Zealand Dollars are trading lower on Tuesday in reaction to concerns over data showing China’s economy slowed sharply in 2018 and weakening global growth. The lack of fresh developments over U.S.-China trade relations could also be weighing on the Aussie and Kiwi. Losses are likely being limited by a drop in U.S. Treasury yields.

At 0807 GMT, the AUD/USD is trading .7128, down 0.0029 or -0.39% and the NZD/USD is at .6721, down 0.0008 or -0.12%.

China Economic News

On Monday, China announced that its official economic growth came in at 6.6 percent in 2018- the slowest pace since 1990. The number came in as expected. In 2017, China GDP was 6.8 percent.

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Additionally, fourth quarter GDP growth was 6.4 percent, again matching expectations. However, that was a decline from the 6.5 percent year-over-year growth in the third quarter of 2018.

Not all of the reports released on Monday were as gloomy as GDP. Industrial production grew 5.7 percent in December from a year earlier. Economists were looking for a reading of 5.3 percent. November’s report showed 5.4 percent growth.

Retail Sales rose 8.2 percent in December on-year. This also met expectations. It also beat the November figure showing an 8.1 percent gain.

Chinese statistics bureau chief Ning Jizhe told reporters on Monday that his country’s trade dispute with the U.S. has affected the domestic economy, but the impact was manageable.

He also said China’s economy has shown a slowing but stabilizing trend in the last two months, and that it was still driven overall by domestic demand. This is probably why the Chinese government said last week it would increase stimulus. These policy tweaks such as tax cuts and infrastructure spending are expected to stabilize the economy and help the government achieve a “soft landing.”

IMF Reduced Global Forecast

The International Monetary Fund reduced its estimate for global growth on Monday, cautioning that the economic momentum seen in recent years is slowing.

The IMF now estimates a 3.5 percent global growth rate for 2019 and 3.6 percent for 2020. These are 0.2 and 0.1 percentage points below its last forecasts in October, making it the second downturn revision in three months.

“A range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications, especially given high levels of public and private debt,” the IMF said.

Speaking at the World Economic Forum in Davos, Christine Lagarde, managing director of the IMF, said:  “After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising. But even as the economy continues to move ahead…it is facing significantly higher risks.”

Forecast

The bleak economic forecasts are likely to continue to pressure the Aussie and the Kiwi on Tuesday especially if investors start to move money into the safe-haven U.S. Dollar. Basically, if the global economy slows especially China then the Australian and New Zealand economies should feel similar pressure. The would push any chances of a rate hike by the Reserve Bank of Australia and the Reserve Bank of New Zealand further out into the future.

New Zealand Dollar traders are preparing for the release of the latest New Zealand consumer inflation data early Wednesday. The CPI is expected to come in flat. The previous quarterly report showed a 0.9% increase.

This article was originally posted on FX Empire

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