The Australian and New Zealand Dollars are trading lower on Friday on profit-taking and position-squaring ahead of today’s U.S. Non-Farm Payrolls report. Also pressuring the currencies are a private survey which showed factory activity in China shrank by the most in almost three years in January. This comes in on top of the news from earlier in the week which showed official government manufacturing PMI was still in contraction.
At 07:59 GMT, the AUD/USD is trading .7249, down 0.0025 or -0.36% and the NZD/USD is at .6913, down 0.0005 or -0.06%.
Triggering the price surge this week in the Aussie and Kiwi is the dovish tone set by Wednesday’s U.S. Federal Reserve interest rate decision, monetary policy statement and remarks by Chairman Jerome Powell.
Also providing support is the better than expected Australian and New Zealand headline inflation data which may have taken an interest rate cut off the table. The Kiwi received an additional boost after the S&P Corp. raised New Zealand’s credit outlook.
U.S.-China Trade Relations
Risk sentiment is still fairly strong. The catalyst behind this assessment is likely the upbeat tone in the markets following the two-day high level trade talks between the United States and China.
On Thursday, President Trump said he would meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as the top U.S. negotiator reported “substantial progress” in the two days of high-level talks, CNBC said.
Forecast
As far as the Non-Farm Payrolls report is concerned, traders shouldn’t expect the same blow-out numbers they saw in December. This is because the more than month-long partial federal government shutdown is likely to have skewed the data. Some are saying the shutdown “may dampen the number of new jobs added and distort the reading on wage growth.”
The consensus forecast shows the U.S. economy may have added 165,000 non-farm payrolls in January. The unemployment rate is expected to come in unchanged at 3.9%. The most important average hourly earnings are expected to have increased 0.3% month-over-month. This would be lower than last month’s 0.4% reading. Annually, earnings growth is expected to hold steady at 3.2%.
Any weakness in the labor market report especially a drop in wage inflation is likely to be bearish for the U.S. Dollar because it will support Fed Chair Powell’s statement that “The case for raising rates has weakened somewhat.”
Traders will also be watching today’s ISM Manufacturing PMI report. It is expected to come in unchanged at 54.1. A lower number should also pressure the greenback.