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The commodity-linked Australian and New Zealand Dollars were underpinned on Monday after President Trump’s top Treasury official said the trade war with China is “on hold,” a truce that removed a big risk from the market for now.
Over the weekend, Steven Mnuchin, the U.S. Treasury Secretary, cited “progress” in trade talks and said the economic rivals were “putting the trade war on hold.” Australia and New Zealand are major trading partners with China so they could benefit from an easing of tensions between the two economic powerhouses.
On Monday, the AUD/USD settled at .7582, up 0.0070 or +0.93% and the NZD/USD finished at .6945, up 0.0025 or +0.26%.
There were no major economic reports on Monday, but scheduled to speak was FOMC Member Raphael Bostic.
Atlanta Federal Reserve Bank President Raphael Bostic said on Monday the U.S. economy is close to meeting the Fed’s employment and inflation goals, with growth of around 2.5 percent expected this year.
In prepared remarks to an economic group in Atlanta he did not update his views on interest rates, but has recently said he has a base case for two additional rate increases this year.
He also said that as the Fed debates possible changes to its inflation framework, he is “drawn to” systems that offset years of below- or above-target inflation with “misses” in the opposite direction.
In other news, U.S. government debt yields were flat on Monday following last week’s sharp rise, when both the 10-year Treasury note and two-year Treasury note hit multiyear highs.
Bond traders said anticipation of the Fed minutes on Wednesday may have held the markets in check.
Forecast
The AUD/USD and NZD/USD rallied on Monday because the news offered investors some relief over trade concerns. The momentum into the close suggests there may be some follow-through to the upside on Tuesday.
The news about trade will likely start to fade as we approach the release of the Fed minutes on Wednesday. The minutes could determine the next major move in the Aussie and Kiwi as they are expected to reveal the Fed’s inflation outlook. Higher inflation could mean faster interest rate hikes and a stronger U.S. Dollar.
This article was originally posted on FX Empire