AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Extends Gains as Investors Bet on Quick Recovery

The Australian and New Zealand Dollars are edging higher early Thursday as slightly weaker U.S. Treasury yields weighed on the U.S. Dollar. The Aussie is showing strength despite a steep drop in jobs in September, with speculators betting on a quick recovery now that stay-at-home restrictions are being unwound.

At 04:25 GMT, the AUD/USD is trading .7386, up 0.0006 or +0.08% and the NZD/USD is at .6979, up 0.0012 or +0.17%.

Aussie Futures Point toward Earlier Rate Hike While RBA Stands Its Ground

The rapid pace of vaccinations is one reason investors have recently wagered the Reserve Bank of Australia (RBA) will hike interest rates well before its favored time frame of 2024.

The widening of the spread between Australian Government bonds and U.S. Government bonds has also supported the Aussie. Three-year bond yields have shot up in the last couple of weeks to the highest level since March last year at 0.59%.

Additionally, futures traders are almost fully priced for a hike in the 0.1% cash rate by October 2022, in part reflecting bets the U.S. Federal Reserve will be tightening by then.

Although speculators are betting on an earlier RBA rate hike, the Reserve Bank of Australia (RBA) is sticking to its dovish script with Deputy Governor Guy Debelle on Thursday saying Australia was not seeing the sort of wage and inflation pressures evident in the U.S. or the U.K.

Lagging Inflation Still a Worry for RBA

Taylor Nugent, an economist at NAB, noted the damage done by the lockdowns would likely only delay the pick up in wages the RBA argues is necessary to get inflation back into its target band of 2%-3%.

Core inflation has run below the band for the past five years and figures for the third quarter due next week are expected to show another sub-2% reading.

“If Australian core inflation continues to lag global inflation, market pricing of rate hikes looks over done,” said Nugent. “NAB sees the RBA on hold until 2024.”

Australia Employment Falls 138,000 in September amid Lockdowns

Australian employment fell sharply for a second month in September as coronavirus lockdowns forced businesses to lay off workers and slash hours, while the jobless rate was held down by another drop in the number of people looking for work.

Thursday’s data from the Australian Bureau of Statistics (ABS) showed employment fell by 138,000 in September, compared to median forecasts of a drop of 137,500.

The unemployment rate edged up to 4.6%, from 4.5%, when analysts had expected a rise to 4.8%. The rate has been badly distorted by lockdowns which prevent people looking for work and being counted as unemployed.

Daily Forecast

The early strength in the AUD/USD and NZD/USD suggest Wednesday’s highly anticipated Fed minutes revealed no surprises.

In the minutes, the Federal Reserve signaled it could start reducing its crisis-era support for the U.S. economy by the middle of next month, with a growing number of its policymakers worried that high inflation could persist longer than previously thought.

“Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” according to the minutes of that meeting.