AUD/USD and NZD/USD Fundamental Daily Forecast – Stronger on China Data, but Gains Could Be Capped Ahead of RBA Decisions
The Australian and New Zealand Dollars are trading higher on Monday following the release of upbeat economic data from China. The news helped dampen concerns over a global economic slowdown, while driving up demand for higher risk assets.
The news comes out ahead of a key interest rate and monetary policy decision by the Reserve Bank of Australia on Tuesday and less than a week after the Reserve Bank of New Zealand signaled its next policy change would be a rate cut.
At 0300 GMT, the AUD/USD is trading .7125, up 0.0029 or +0.41% and the NZD/USD is at .6833, up 0.0026 or +0.38%.
China Data Driving the Price Action
Over the weekend, China reported its services industry saw faster growth in March than estimated, while manufacturing activity also recovered.
The official non-manufacturing purchasing managers’ index (PMI), which covers the services and construction sectors, rose 0.5 points from February to 54.8, to remain well above the 50-point mark that separates growth from contraction.
This is important because the services sector accounts for more than half of China’s economy and has helped soften the impact of a manufacturing downturn. Growth slowed late last year, but never contracted, however, amid a cooling property market and faltering consumer demand for everything from cars to mobile phones.
The major event that has global investors excited is the news that China’s official manufacturing PMI picked up in March after posting three months of declines. The report showed a rise of 1.3 points to 50.5, pulling the survey out of a contraction. Furthermore, the monthly gain was the greatest since February 2012 and came after Beijing announced it would introduce tax cuts to help struggling manufacturers.
Additionally, the composite PMI, which covers both manufacturing and services, rose to 54 points in March, from 52.4 a month earlier.
The good news from China continued on Monday with a private survey showing manufacturing activity in China expanding unexpectedly in March after shrinking for three straight months.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 50.8 for March. Traders were looking for a reading of 49.9 for a second month.
Other News
In other news, the AIG Manufacturing Index came in at 51.0, lower than the previously reported 54.0. MI Inflation rose 0.4%, up from 0.1%. NAB Business Confidence was 0 versus a previously reported 2.
The National Australia Bank’s (NAB) headline business confidence index fell to 0 during the month, the lowest level seen since January 2016. However, the separate conditions index rebounded sharply to +7 from +4 in February, driven by an improvement in perceptions towards profitability, trading conditions and hiring.
Daily Forecast
The early news is bullish for the AUD/USD and NZD/USD, but gains could be limited later in the session if the U.S. economic data comes in stronger than expected. Of course, weaker than expected data could underpin the Forex pairs.
U.S reports include retail sales, ISM Manufacturing PMI, Business Inventories, and Construction Spending. The major reports are Core Retail Sales and Retail Sales. Look for a 0.4% and 0.3% increase respectively. ISM Manufacturing PMI was reported at 54.2 last month. Traders would like to see the uptrend continue.
Volume and volatility could slow throughout the session ahead of the RBA interest rate decision and monetary policy statement. The central bank is expected to leave its benchmark interest rate unchanged, but what has Aussie investors on edge is the monetary policy statement.
Some believe the RBA will follow the RBNZ and announce the next move will be a rate cut. In this case the AUD/USD would likely plunge. Others believe the RBA will continue to remain neutral as it bets on strong labor market conditions holding the economy together while waiting for growth to return.
This article was originally posted on FX Empire
