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AUD/USD and NZD/USD Fundamental Daily Forecast – Reaction to RBNZ Decision Could Be Classic “Sell Rumor, Buy Fact”

The Australian and New Zealand Dollars are inching higher on Wednesday, shortly before the Reserve Bank of New Zealand (RBNZ) releases its Official Cash Rate (OCR) and Monetary Policy Statement at 01:00 GMT. This will be followed by a press conference at 02:00 GMT.

Both currencies were supported on Tuesday as investors moved money out of the safe-haven U.S. Dollar and into riskier assets including commodity-linked currencies like the Aussie and the Kiwi. The catalyst behind the shift in sentiment was rising hopes of a breakthrough in U.S.-China trade talks.

At 00:52 GMT, the AUD/USD is trading .7095, down 0.0001 or -0.01% and the NZD/USD is at .6704, up 0.0001 or +0.01%.

Providing the hope was a positive comment from U.S. President Trump. He said on Tuesday that he could let the March 1 deadline for a trade agreement with China “slide for a little while,” but that he would prefer not to and expects to meet with Chinese President Xi Jinping to close the deal at some point.

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Perhaps limiting gains on Tuesday was the news that U.S. lawmakers reached a tentative agreement on border-security funding that might help avert another government shutdown, otherwise due to start on Saturday. Trump didn’t really like the new deal, but indicated he did not expect another shutdown.

Also limiting gains in the Australian Dollar were last week’s dovish comments from Reserve Bank of Australia Governor Philip Lowe, who moved the central bank’s policy to neutral after months of telling investors the next move in interest rates would likely be up.

Daily Forecast

The primary focus for investors on Wednesday will be the RBNZ interest rate and policy decisions.

The RBNZ is widely expected to keep its benchmark interest rate unchanged at 1.75%. Furthermore, investors expect Governor Orr to issue a more “dovish” statement, joining the other major central banks with this assessment. Turning dovish will be a huge flip by the central bank since it sounded more upbeat in its last monetary policy statement released in November.

Traders should also expect the RBNZ to acknowledge the increased global risks.

Shortly ahead of the news, futures traders are pricing in close to a 40% chance of an RBNZ rate cut by May.

Last week, the Reserve Bank of Australia (RBA) turned neutral, stating that the Australian economy “could be weaker than it thinks and that the risks to the economic outlook are more balanced.”

Traders have to watch for the classic “sell the rumor, buy the fact” move since many investors already started pricing in a dovish RBNZ last week. The AUD/USD and NZD/USD could move higher on short-covering and position-squaring because of the positive outlook over U.S.-China trade relations.

This article was originally posted on FX Empire

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