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AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Jumps as Traders Price in August 18 Rate Hike

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·3-min read
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The Australian and New Zealand Dollars are trading higher on Wednesday with the Kiwi leading the charge following the release of bullish domestic employment data. The Aussie is being helped by the Reserve Bank’s (RBA) hawkish decision the previous session to maintain its schedule for tapering its bond purchases. Lower Treasury yields and increased demand for risky assets are other factors underpinning the currencies.

At 02:28 GMT, the AUD/USD is trading .7402, up 0.0008 or +0.10% and the NZD/USD is at .7050, up 0.0032 or +0.45%.

Kiwi Spikes Higher as Strong Jobs Data Raises Chances of Rate Hike

New Zealand’s jobless rate fell sharply in the second quarter, beating expectations and sending the Kiwi Dollar higher as markets saw the upbeat data as a further sign that monetary policy will be tightened this month.

Data released by Statistics New Zealand on Wednesday showed the jobless rate fell to 4.0% in the quarter ending June from a revised 4.6% in the previous quarter, when analysts had expected it to hold at 4.5%.

The jobless rate is the lowest since December 2019 and back at pre-COVID levels after the pandemic lockdowns saw the unemployment rate surge to 5.3% last year.

The seasonally adjusted number of employed rose 1.0% in the first quarter, again topping forecasts of a 0.7% increase. The participation rate rose to 70.5% ad the underutilization rate fell to 10.5%.

Wage growth accelerated in the June quarter with private sector labor cost index (LCI) recording a 0.9% lift, higher than a forecast 0.6% increase.

Aussie Supported after RBA Sticks with Bond Tapering Plan

The Australian Dollar is being underpinned after the Reserve Bank of Australia (RBA) stuck with its plan to taper its bond-buying program on Tuesday, shrugging off concerns about economic impacts of rising coronavirus cases.

The RBA held the cash rate at a record low 0.1% in a widely expected move and reiterated the need for the setting to remain unchanged until 2024 to help spark wage and inflation pressures.

Policymakers are taking their first step towards tempering its massive stimulus as employment proves far stronger than previously expected, although actual rate hikes remain a distant prospect.

However, Governor Philip Lowe pushed back on the market pricing, saying the board was “not thinking” of hiking even in 2023 as it expects inflation pressures to remain muted.

“Our central scenario continues to be that the condition for an increase in the cash rate will not be met until 2024,” Lowe said.

Daily Forecast

The strong jobs data affirms economists’ views that the Reserve Bank of New Zealand (RBNZ) will raise the official cash rate (OCR) when it meets on August 18.

The data shows New Zealand has flown past full employment, and the economy is becoming quite overheated, ANZ Bank said in a note.

“The RBNZ needs to hike the OCR promptly to get on top of this. We now expect faster hikes this year,” said ANZ Chief Economist Sharon Zollner.

ANZ expects that OCR will be raised at the August, October, and November meetings, with two more hikes in February and May, bringing the OCR to a terminal rate of 1.5% by mid-2022.

Technically, the NZD/USD has room to run over the short-run with .7099 to .7150 the next upside target.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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