The main outcome of the negotiation between the United States and China last week was the decision to postpone the increase in duties on Chinese goods. Donald Trump backed up with a positive statement that the first part of the agreement could be signed at the APEC summit in Chile, and Finance Minister Mnuchin added that the agreements generally cover US exports worth up to $ 50 billion..
Despite the fact that the signing is postponed, and there is no certainty that the agreement will ultimately meet the long-term expectations of the market, positivity allows risky assets to resume growth. On the other hand, weak statistics on China's trade balance was ignored as a temporary phenomenon, the stock exchanges of Asia-Pacific grew significantly on Monday morning, which cannot be said about European exchanges. For Europe, any trade negotiations without its participation are just an additional risk factor and nothing more.
NZD/USD
For most of New Zealand's macroeconomic indicators, there is no complete clarity, which increases the probability of Kiwi trade in the lateral range until a strong external factor appears.
ANZ's monthly inflation indicator increased 0.3% mom in September, thanks to aviation tariffs and housing related components. Annual inflation also rose to 3.0% from 2.9%, amid the global decline in trade, which is a good sign that contributes to the growth of NZD. The quarterly indicator indicates an increase in non-tradable inflation by 1.1%, that is, the RBNZ can continue to pause without worrying about inflation expectations.
On the other hand, the manufacturing PMI looks frankly weak, contracting for the third month in a row, in September 48.4p, which roughly corresponds to global indicators.
The weakest sub-index is a reduction in raw material supplies to a minimum since March 2011, and new orders since April 2012, which suggests a further decrease in PMI amid a slowdown in world trade. The rate of decline in 2008/09 is still far away, but the trend is unlikely to change.
The short-term Kiwi won back 61.8% of the September fall. Moreover, it failed to overcome the local maximum of 0.6347, which increases the chances of the formation of a local peak and movement to 0.62. Clear signs of an approaching recession in the US are putting pressure on the dollar, so even a weak Kiwi has no reason for a pronounced decline.
AUD/USD
After a rapid fall, the forecast indicators of business conditions from banks NAB and Ai Group are trying to stay in a positive territory. The indicator from NAB rose in September to + 2p, which indicates the positive conditions for Australian business. Although the conditions are positive, the NAB has been below its long-term average for the sixth month in a row. As can be seen from the recent results for the Australian PMI, PSI, and PCI, which are part of the Ai Group, NAB's business conditions went from a record high at the beginning of 2018, and were only moderately positive in 2019.
Westpac's consumer confidence index fell in September from 98.2p to 92.8p, and this is the lowest since July 2015. The drop occurs despite the fact that the RBA has already reduced the rate three times since June, although the connection between the decrease in the rate was previously usually accompanied by an increase in consumer confidence.
Australian banks generally agree on the current situation - they expect the RBA to prepare another rate cut, not in the near future, but after a pause. By February, it is expected that the rate will fall to 0.5%, while the RBA will focus on finding innovative incentive methods, as the reaction of consumers to lower rates, as shown by Westpac, is very different from forecasts.
Australian currency, as expected, went up from the support of 0.6674 / 86, and should form a peak in front of a new wave of decline, but external factors intervened. Now, the markets need some time to win back the positivity from the negotiations between the US and China, during which time the AUD will feel confident. Thus, there is a chance to stay above the support of 0.6672 and return to 0.6810 in the coming days, while a decline to the support of 0.6760 is less likely.