AUD/USD and NZD/USD Fundamental Daily Forecast – Up on Short-Covering Fueled by Strong China Export Data

The Australian and New Zealand Dollars are snapping back on Thursday following yesterday’s late session reversal to the downside. The move put the Aussie negative for the session and encouraged Kiwi traders to give back about half of its earlier gains. The catalyst behind today’s rebound rally is China’s better-than-expected January trade balance data. This news combined with general optimism over a U.S.-China trade deal may be underpinning both currencies.

At 05:08 GMT, the AUD/USD is trading .7118, up 0.0029 or +0.41% and the NZD/USD is at .6828, up 0.0031 or +0.45%.

China Trade Data Helps Fuel Rebound Rally

Early in the trading session, China released January trade balance data that beat consensus expectations in both the Chinese Yuan (CNY) and U.S. Dollar (USD) terms. Looking at the CNY side, the trade balance figures came in at 271.42 billion compared to 395 billion CNY reported in December. As far as the USD side is concerned, the trade balance beat expectations of $33.50 billion surplus by coming in at $39.16 billion.

Exports were strong in January, but imports are still faltering. Exports rose by 13.9% on the year in January, well ahead of market expectations of a rise of just 3.8%. Additionally, December’s rise was only 0.2%. Contrarily, imports fell by 1.9%, matching the forecast, but was still better than the previous month’s decline of 3.1%.

Aussie and Kiwi traders seemed to be impressed enough by the news to fuel a short-covering rally. Traders reacted positively to the news because the numbers could have been worse given current U.S.-China trade tensions. Furthermore, the numbers were based on the time period between holiday seasons in the West and the start of the Lunar New Year period in Asia so they may have been distorted somewhat.

Rally Offsetting Wednesday’s Rollercoaster Ride

Both the Aussie and Kiwi traded firm on Wednesday after the Reserve Bank of New Zealand released a less-dovish-than-expected monetary policy statement. Traders had priced in a dovish statement, expecting the central bank to suggest its next move in interest rates would be lower. Ahead of the statement, traders were pricing in a June rate cut.

The Aussie and Kiwi topped out during the U.S. session on the strength of the U.S. Dollar. The greenback rose after the U.S. Labor Department reported that its Core Consumer Price Index gained 0.2 percent, rising by the same margin for a fifth straight month. In the latest 12-month period, Core CPI rose 2.2 percent for a third straight month.

Daily Forecast

Despite today’s strength, the Aussie and Kiwi are in downtrends which likely means the current rallies will be short-lived. Besides the news, the rallies are being fueled by short-covering and position-squaring probably linked to technically oversold conditions.

Furthermore, their respective central banks are dovish and traders are pricing in rate cuts later in the year. While a few of the weaker shorts may have been blown out during Wednesday’s short-covering rally, especially in the Kiwi, only time will tell if the Reserve Bank of New Zealand is right about a stronger economy later in the year. It may get its forecast if the U.S. and China can bring an end to the trade dispute in a timely manner.

This article was originally posted on FX Empire

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