AUD/USD and NZD/USD Fundamental Daily Forecast – Could Spike Higher on Jobs Report Miss, Dovish Powell

Traders may delay their reactions to the jobs data because at 1515 GMT, U.S. Federal Reserve Chairman Jerome Powell is scheduled to speak. Investors will be listening to hear if he softens his tone on interest rate hikes. Market participants are currently expressing fears that the Fed could bring on a recession with a policy misstep.
James Hyerczyk
AUD/USD and NZD/USD
AUD/USD and NZD/USD

The Australian Dollar and New Zealand Dollars are following through to the upside early Friday following yesterday’s dramatic technical closing price reversal bottoms. Early in the session on Thursday, the Aussie spiked to its lowest levels since the Global Financial Crisis (GFC). Additionally, Thursday’s trading range was also its largest since the UK Brexit referendum in June 2016.

At 0824 GMT, the AUD/USD is trading .7028, up 0.0021 or +0.30% and the NZD/USD is at .6696, up 0.0003 or +0.05%.

Helping to underpin the Aussie and the Kiwi was weaker-than-expected U.S. economic data and dovish remarks from a high-ranking U.S. Federal Reserve official. Falling U.S. Treasury yields also made the U.S. Dollar a less-desirable investment while increasing demand for the Australian and New Zealand Dollars.

In the U.S., the ISM Manufacturing PMI came in at 54.1, well below the 57.5 consensus and November’s 59.3, driven by the new orders subindex which slumped to 51.1 from 62.1.  The drop in the main index closely mirrors the sharp weakness recently seen in the equivalent China PMI import sub-index.

The soft ISM Manufacturing PMI report drove the U.S. 2 and 10-year bond yields lower by 10 and 8 basis points respectively, putting pressure on the U.S. Dollar will increasing demand for the Australian and New Zealand Dollars.

Dovish remarks from Dallas Federal Reserve President Robert Kaplan also helped underpin the AUD/USD and NZD/USD.

“There are three big issues that I see reflected in the markets that are consistent with what I’m seeing in the economy,” Kaplan said in an interview on Bloomberg TV.

“Global growth decelerating…, interest-sensitive industries are showing weakness… and financial conditions have tightened and credit spreads have widened.

“My own view is we shouldn’t take any further action on interest rates until these issues are resolved for better or for worse… so I would be an advocate of taking no action during the first couple of quarters of this year.”

In China, the confirmation of vice-ministerial level trade talks with the U.S. on January 7-8 along with positive data from the services sector also helped support the Aussie and Kiwi. The Caixin/Markit services purchasing Managers’ index (PMI) jumped to a six-month high of 53.9 in December, rising from 53.8 in the previous month. The figure was significantly higher than the 50.0 mark which separates expansion from contraction.

Forecast

Later today at 1330 GMT, the U.S. will release its Non-Farm Payrolls report. The Non-Farm Employment Change is expected to show the economy added 179K jobs in December, up from 155K. The Unemployment Rate is expected to come in unchanged at 3.7%. Average Hourly Earnings are expected to have risen by 0.3%.

Traders may delay their reactions to the jobs data because at 1515 GMT, U.S. Federal Reserve Chairman Jerome Powell is scheduled to speak. Investors will be listening to hear if he softens his tone on interest rate hikes. Market participants are currently expressing fears that the Fed could bring on a recession with a policy misstep.

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