AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie, Kiwi Bullish Outlooks Outweighed by Weak Chinese Data

The Australian and New Zealand Dollars are trading lower early Thursday despite dovish comments from Federal Reserve Chairman Jerome Powell on Wednesday, better-than-expected employment news from Australia and a real chance New Zealand interest rates could rise as soon as August. Data that showed China’s economic recovery was losing steam may be weighing on the Aussie and Kiwi.

At 06:54 GMT, the AUD/USD is trading .7476, down 0.0007 or -0.10% and the NZD/USD is at .7022, down 0.0016 or -0.0016.

Australian Economy Adds More Jobs, Employment Rate Drops

Australian’s jobless rate, led by the country’s remarkable recovery from the coronavirus pandemic, improved to a level last seen during the one-in-a generation mining boom and may help bring forward the date of monetary policy tightening.

Thursday’s data from the Australian Bureau of Statistics (ABS) showed 29,000 net new jobs were created in June, in-line with forecasts for a 30,000 gain and on top of 115,100 in May. The increase was entirely led by full-time jobs, which jumped by 51,600.

Unemployment dropped to 4.9%, the lowest since December 2010, when a mining investment boom that ended in 2013 was powering Australia’s economy.

China’s Economic Recovery Loses Some Steam, Investors Eye More Policy Easing

China’s economy grew slightly more slowly than expected in the second quarter, weighed down by higher raw material costs and new COVID-19 outbreaks, as expectations build that policymakers may have to do more to support the recovery.

Gross domestic product (GDP) expanded 7.9% in the April-June quarter from a year earlier, official data showed on Thursday, missing expectations for a rise of 8.1% in a Reuters poll of economists.

Reserve Bank of New Zealand Ends Bond Buying Campaign

The NZD/USD is being underpinned by the Reserve Bank’s surprise announcement early Wednesday that it was ending its bond buying campaign on July 23, well before most analysts had expected.

That news led some to tip a rate rise as early as next month, with the market now implying a 70% risk of a quarter-point hike to 0.5% at the August 18 policy meeting.

Fed’s Powell Sticks to Script on Jobs Recovery, Feels Heat on Inflation Front

Federal Reserve Chair Jerome Powell on Wednesday pledged “powerful support” to complete the U.S. economic recovery from the coronavirus pandemic, but faced sharp questions from Republican lawmakers concerned about recent spikes in inflation, Reuters reported.

In testimony to the U.S. House of Representatives Financial Services Committee, Powell said he is confident recent price hikes are associated with the country’s post-pandemic reopening and will fade, and the Fed should stay focused on getting as many people back to work as possible.

Any move to reduce support for the economy, by first slowing the U.S. central bank’s $120 billion in monthly bond purchases, is “still a ways off,” Powell said, with 7.5 million jobs still missing from before the pandemic.

“The high inflation readings are for a small group of goods and services directly tied to the reopening,” Powell testified, language that indicated he saw no need to rush the shift towards post-pandemic policy. The Fed at this point expects to continue its bond buying until there is “substantial further progress” on jobs, with interest rates pinned near zero likely until at least 2023.

Daily Forecast

The news is bullish for the AUD/USD and NZD/USD, yet buyers seem reluctant to chase prices higher early Thursday. Economic data from China may be weighing on the Aussie and Kiwi today.

It could be just a delay since the dovish comments from Powell combined with the bullish labor market data from Australia and the hawkish move from the RBNZ is enough to launch a strong rally over the near-term.

Be patient. I think there’s more upside potential than downside.