Yahoo Finance AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Plunges as Traders Price in April Rate Cut
The Australian and New Zealand Dollars are plummeting on Tuesday in reaction to escalating concerns over the economic outlook for China as a result of the coronavirus outbreak. The initial selling pressure was fueled after Apple Inc. said Monday that it does not expect to meet its quarterly revenue forecast because of lower iPhone supply globally and lower Chinese demand as a result of the coronavirus outbreak.
At 09:53 GMT, the AUD/USD is trading .6675, down 0.0038 or -0.57% and the NZD/USD is at .6396, down 0.0042 or -0.64%.
A second wave of selling hit the Aussie and Kiwi after minutes from the Reserve Bank of Australia’s (RBA) first meeting of the year showed policymakers discussed easing policy.
The RBA kept rates unchanged at an all-time low of 0.75% at that meeting, but the minutes showed central bankers are prepared to ease policy further if needed.
Both the Aussie and Kiwi remain extremely vulnerable to the impact of the coronavirus on China’s economy due to their extensive trade ties with the world’s second largest economy. These ties include commodities, tourism and education.
Traders Interpret RBA Minutes as Dovish
On Tuesday, the Fed minutes showed the RBA reviewed the case for a further interest-rate cut at its early February meeting, but decided against it in order to avoid encouraging additional borrowings as hours prices climb.
The minutes also showed RBA policymakers expect the coronavirus outbreak to “subtract from growth in exports over the first half of 2020.” The RBA also acknowledged it was “difficult to assess potential indirect effects on activity” from the epidemic and devastating wildfires over summer as data were yet to be published.
The RBA also maintained an easing bias and reiterated its expectation rates were likely to stay low for “an extended period.” However, policymakers also retained a broadly upbeat view of the economy’s prospects.
“The outlook for the Australian economy was for growth to improve, supported by a turnaround in mining investment and, further out, dwelling investment and consumption,” the bank said. “In the short-term, the effects of the bushfires were temporarily weighing on domestic growth, but the recovery was likely to reverse the negative effects on GDP.”
Daily Forecast
Although the RBA kept rates on hold on February 4, it notes few near-term positive signs in its minutes. “The prolonged period of slow growth in income was expected to continue to weigh on consumption over coming quarters,” the bank said. “Furthermore, recent data had suggested that households were directing more income to saving and reducing their debt.”
This combined with worsening conditions in China and other neighboring countries likely means the RBA will have to make another rate cut. The market is pricing in a near-term rate cut, but the RBA sees “risks associated with very low interest rates”. Perhaps the upcoming economic data from China, which is expected to be bearish, will persuade policymakers to make an early rate cut at its April meeting.
This article was originally posted on FX Empire
