The divergence in monetary policy between the U.S. Federal Reserve and the Reserve Bank of Australia and the Reserve Bank of New Zealand is triggering a sell-off early Friday. The price action suggests Aussie and Kiwi investors aren’t too concerned about the U.S. Non-Farm Payrolls report.
This also suggests that they believe the report will support the Fed’s argument for a rate hike in December and that nothing in the report could derail the central bank’s strong case for a rate hike.
At 0900 GMT, the AUD/USD is trading .7771, down 0.0023 or -0.29% and the NZD/USD is trading .7096, down, 0.0020 or -0.28%.
Helping to drive the Australian Dollar sharply lower on Friday were dovish comments from RBA board member Ian Harper.
Harper told the Wall Street Journal that the RBA remains concerned about low wage growth, and said Australia’s economic recovery had been “painfully slow”.
Harper’s comments served to fuel speculation that the RBA is in no rush to raise rates, despite recent moves in market pricing which had brought forward the timing of the next rate hike to the middle of next year.
Harper’s comments triggered a spike through the major technical support level at .7782. If sellers can sustain the move, the AUD/USD could see a steep sell-off with the next major target coming in at .7571.
The NZD/USD also plunged on Friday and is also in a position to collapse under a key technical area. It is being pressured by expectations for higher U.S. interest rates ahead of today’s U.S. Non-Farm Payrolls report and as the final election tally looms. A sustained move under .7100 could trigger a steep sell-off with .6817 the next major target.
The Non-Farm Employment Change is expected to show the economy added 82,000 jobs in September. The number is expected to be low due to the impact of hurricanes Harvey and Irma.
Average Hourly Earnings are expected to come in at 0.3%. The Fed pays close attention to this part of the report so a stronger number will increase support for a December rate hike. A lower number will raise some issues, but shouldn’t derail the Fed’s plans.
The unemployment rate is expected to come in unchanged at 4.4%.
In addition to the NFP report, traders will have a chance to react to comments from FOMC Member William Dudley and FOMC Member Robert Kaplan.
We’re going to be paying close attention to the Average Hourly Earnings number. The AUD/USD and NZD/USD could extend their losses if the Average Hourly Earnings number comes in above 0.3%.
This article was originally posted on FX Empire
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