AUD/USD and NZD/USD Fundamental Daily Forecast – All Signs Pointing to Economic Weakness, Rate Cuts

James Hyerczyk

The Australian and New Zealand Dollars are trading lower on Monday and in a position to resume the early sell-off from Friday that was temporarily interrupted by a short-covering rally that was fueled by weaker-than-expected U.S. economic data.

The selling pressure on the Aussie and Kiwi are likely being fueled by a sharp rise in coronavirus cases in South Korea, a major trading partner with Australia and New Zealand. In fact, economic weakness in China, Thailand, Vietnam and Indonesia is also weighing on prices.

At 07:51 GMT, the AUD/USD is trading .6592, down 0.0035 or -0.53% and the NZD/USD is at .6308, down 0.0044 or -0.69%.

Investors are essentially being spooked by the secondary infections that they’ve seen outside of China. “The sheer explosion of the rate in South Korea has been quite frightening … there’s a sobering realization that this could really impact hard and fast,” according to Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

Aussie and Kiwi investors are also fretting over the mounting economic toll from the virus, betting on more monetary policy action from central banks. The financial markets in Australia and New Zealand are beginning to signal more rate cuts later this year.

New Zealand Retail Trade Growth Slows in Q4

The volume of total retail sales in New Zealand rose a seasonally adjusted 0.7 percent in the last quarter of 2019, Statistics New Zealand said on Monday, easing from an upwardly revised 1.7 percent increase in the previous period. Traders were looking for an increase of 0.8 percent.

The total value of retail sales was up 1.1 percent on quarter or NZ$268 million. Additionally, nine of the 15 industries had higher sales volumes in the December 2019 quarter.

Year-on-year, retail trade went up 3.3 percent, following a 4.5 percent gain in the prior period.

In another report, Credit Card Spending came in at 3.7%, up from 3.5%.

New Zealand Extends Ban on China Arrivals; No Curbs Yet for Other Nations

New Zealand has extended for eight days a ban on arrivals from mainland China, Prime Minister Jacinda Ardern said on Monday, carrying into its fourth week an effort to block exposure to the coronavirus. But New Zealand has no plans for now to widen the ban to other countries, Ardern told a news conference, adding, “We continue to focus on the epicenter of outbreak.”

Ardern added that it was highly likely the virus would eventually arrive in New Zealand, although it has no confirmed infections.

Finance Minister Grant Robertson said the government would step in to assist businesses hit by the spread of the virus, if there is a long lasting shock to the economy or a global economic recession, but he did not expect one at the moment.

“If either of these scenarios play out it will be important for the government to play a role to invest in the economy to support New Zealanders and Kiwi businesses,” he added.

Daily Forecast

There are no major U.S. economic reports on Monday so the focus will be on investor demand for safe-haven assets. This means that money is likely to flow back into the U.S. Dollar after Friday’s counter-trend sell-off.

Expectations are that China’s economy will take a major hit during the first quarter so we expect weakness in the Australian and New Zealand economies. Both are major trading partners with China.

With a weaker economy comes calls for lower interest rates. This is making the Aussie and Kiwi less-desirable assets.

This article was originally posted on FX Empire