AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Hirings Surge, While Services Sector Contracts

The Australian and New Zealand Dollars are trading lower on Thursday after giving up earlier gains. Yesterday’s price action suggests investors read the Fed minutes as less-dovish than other financial market investors with both currencies posting lower closes. Early in the session, the Aussie posted a dramatic two-sided move in reaction to mixed economic data.

At 05:08 GMT, the AUD/USD is trading .7161, down 0.0002 or -0.01% and the NZD/USD is at .6894, down 0.0008 or -0.10%.

Fed Minutes

In its minutes, the Fed judged that a “patient” approach to interest rate hikes would be prudent as it continued to weigh various headwinds to growth. These headwinds included “the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions.”

The minutes also showed Fed policymakers spent a lot of time discussing market conditions, particularly on the emphasis that Fed actions were having on prices of risky assets like stocks and corporate bonds. That being said, the Fed also signaled they will soon lay out a plan to stop letting go of $4 trillion in bonds and other assets, but are still debating how long their newly adopted “patient” stance on U.S. rates will last.

Australian PMI Data – Services Sector in Contraction

In Australia, Flash Manufacturing PMI came in at 53.1, but the previous month was revised lower to 53.9. Flash Services PMI was 49.3, lower than the previously reported 51.0.

“The dip in the PMI below the 50 line that separates expansion from contraction is a significant event,” said Michael Blythe, Chief Economist at the Commonwealth Bank.

Blythe says the result “underlines the shift in forward guidance by the RBA to a more neutral setting” this month, abandoning the view previously held that the next move in official interest rates was likely to be higher.

Australian Jobs Growth Surges

Australian employment jumped again in January despite a large increase in the size of the labor force, leaving the unemployment rate steady at 5%.

According to the Australian Bureau of Statistics (ABS), employment surged by 39,100 after seasonal adjustments, breezing past forecasts for a smaller increase of 15,000. December’s employment increase, originally reported as 21,600, was revised down slightly to show a small gain of 16,900.

Despite the surge in hiring last month, the unemployment rate held steady at a seven-year low of 5%, as expected.

Daily Forecast

Today’s wicked two-sided trade indicates investor indecision over Reserve Bank of Australia monetary policy. Although it would have been nice to see a drop in the unemployment rate, the steady jobs growth suggests there’s still little need for the RBA to cut interest rates in the near-term. However, falling housing prices and the weakness in the services sector offsets these gains. Therefore, it’s easy to conclude why the RBA shifted forward guidance to a more neutral setting.

The focus for Aussie and Kiwi traders is now likely to shift to U.S.-China trade relations.