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James Hyerczyk

The Australian and New Zealand Dollars are trading sharply lower on Tuesday after the Reserve Bank of Australia (RBA) signaled another cut in interest rates as early as February. Stronger-than-expected U.S. economic data also weighed on the currencies as well as lower demand for higher-yielding assets. The selling in the Aussie and Kiwi is likely a combination of profit-taking after prolonged rallies, and some speculative shorting.

At 15:16 GMT, the AUD/USD is trading .6848, down 0.0036 or -0.53% and the NZD/USD is at .6572, down 0.0024 or -0.37%.

RBA Minutes

The RBA opened the door to another interest rate cut as early as February, should household incomes stay depressed or the labor market takes a turn for the worse.

Minutes of its December policy meeting out on Tuesday, showed the central bank’s board was concerned that wage growth was too weak to revive either inflation or consumption.

“As part of their deliberations, members noted that the board had the ability to provide further stimulus to the economy, if required,” RBA board members said. “Members also agreed that it was reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target.”

“The board would continue to monitor developments, including in the labor market, and was prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

“Members noted that monetary policy had long and variable lags and that indebted consumers may take some time before increasing their spending in response to a decline in their mortgage interest payments,” they said. “More generally, the persistently low growth in household incomes continued to be a source of concern for the consumption outlook.”

“Members noted that weak growth in household income continued to present a downside risk to consumer spending, and that a low appetite for risk could be constraining businesses’ willingness to invest.”


U.S. Economic Data

Today’s U.S. economic data continued to show a strengthening economy. Building Permits, Housing Starts and Industrial Production beat expectations, while the Capacity Utilization Rate met the estimate.

U.S. homebuilding increased more than expected in November and permits for future home construction surged to a 12-1/2 high as lower mortgage rates continue to boost the housing market and support the broader economy.

Housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units last month, with single-family construction racing to a 10-month high and activity in the volatile multifamily sector increasing for a second straight month, the Commerce Department said on Tuesday. Economists were looking for an increase of 1.345 million units.

Daily Forecast

AUD/USD traders are now bracing for Thursday’s Australian Employment Change and Unemployment Rate reports.

The Employment Change is expected to show the economy added 15.2K jobs in November. In October, the economy lost 19.0K jobs. The Unemployment Rate is expected to remain at 5.3%.

Disappointing labor market data could spike prices sharply lower for a second session this week.

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