AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Traders Pricing in RBNZ Rate Cut

The announcement from the RBA and the weak NZ jobs data indicates the entire region has turned dovish with the strong possibility of interest rate cuts later in the year. Some of the move could be attributed to low liquidity due to the absence of China because of the Lunar New Year holiday, however, for the most part, the selling pressure is real.
James Hyerczyk
AUD/USD and NZD/USD

The Australian and New Zealand Dollars are extending their losses in Europe after steep breaks during the Asian session. That break came on the heels of an even steeper decline during Wednesday’s session. The weakness in the Aussie is being fueled by dovish talk from Reserve Bank of Australia Governor Philip Lowe, who suggested early Wednesday the central bank was prepared to cut interest rates later this year if necessary. Weaker-than-expected employment data sent the Kiwi plunging early Thursday. This data also suggests the Reserve Bank of New Zealand may have to cut its benchmark rate.

At 08:21 GMT, the AUD/USD is trading .7096, down 0.0011 or -0.15% and the NZD/USD is at .6752, down 0.0026 or -0.38%.

New Zealand Dollar

The New Zealand Dollar tracked the Australian Dollar most of the session on Wednesday until late in the day when a weaker-than-expected government employment report triggered an extension of those losses. Those losses are now carrying over to Thursday’s session.

The NZD/USD took a dive after data showed unemployment, job gains and wages growth all missed forecasts.

Employment Change came in at 0.1%, missing the 0.3% forecast. The previous quarter was revised lower to 1.0%. The Unemployment Rate increased to 4.3%, well-above the 4.1% forecast. The previous quarter was revised to 4.0%. The Labor Cost Index showed a 0.5% increase. This matched the previous quarter, but missed the 0.6% estimate.

Australian Dollar

Just like the Kiwi followed the Aussie lower on Wednesday, the Australian Dollar is adding to its previous session losses in response to the steep break in the New Zealand Dollar.

In other news, the AIG Construction Index came in at 43.1, up from the previously reported 42.6. The NAB Quarterly Business Confidence report came in at 1, lower than the previously reported 3. Although still above 0, the drop in confidence suggests conditions are worsening.

Daily Forecast

The announcement from the RBA and the weak NZ jobs data indicates the entire region has turned dovish with the strong possibility of interest rate cuts later in the year. Some of the move could be attributed to low liquidity due to the absence of China because of the Lunar New Year holiday, however, for the most part, the selling pressure is real.

The price action in the government bond market indicates New Zealand Dollar traders are increasing bets on a rate cut. Two-year yields dropped 8 basis points to 1.66 percent, putting them below the 1.75 percent cash rate.

Next week, the RBNZ holds its first policy meeting of the year. The markets are betting it will adopt a dovish stance.

Please let us know what you think in the comments below. 

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