AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Unemployment Rate Edges Lower; Fed on Tap

The New Zealand and Australian Dollars are trading lower on Wednesday with the Kiwi getting hit the hardest. Traders are primarily reacting to the release of key New Zealand employment data that provided some insight into the state of the economy. The Aussie fell in sympathy, despite better-than-expected domestic data. Both currencies were also influenced by position-squaring ahead of the Fed announcements.

At 23:33 GMT, the AUD/USD is trading .7047, down 0.0003 or -0.03%. The NZD/USD is at .6650, down 0.0027 or -0.40%.

Traders are now preparing for the Fed announcements at 18:00 GMT. This could set the tone of the market for the rest of the week.

New Zealand Dollar

According to Stats NZ, the seasonally adjusted unemployment rate came in at 4.2 percent in the March 2019 quarter, down from 4.3 percent in the December 2018 quarter. The number of people unemployed declined at a faster rate than the number of people in the labor force. This resulted in the unemployment rate falling closer to its 10-year low.

The number of employed people increased 38,200 or 1.5 percent (unadjusted) in the year to the March 2019 quarter. Over the same period, filled jobs, as measured by the quarterly employment survey (QES), increased 1.1 percent (unadjusted) – 22,100 more jobs. Of this increase, 18,700 jobs were held by women and 3,400 by men.

The labor cost index (LCI) salary and wage rates (including overtime) increased 2.0 percent in the March 2019 year, while the unadjusted LCI increased 3.4 percent.

In summary, quarterly Employment Change fell 0.2%. Traders were looking for an increase of 0.5%. The previous month showed a 0.1% increase. The Unemployment Rate came in at 4.2% as expected but lower than the previously reported 4.3%. The Labor Cost Index rose 0.3%, coming in below the 0.5% forecast.

Australian Dollar

The latest survey from the Australian Industry Group said on Wednesday that the manufacturing sector in Australia continued to expand in April, and at a faster rate. The Performance of Manufacturing Index score of 54.8 was higher than the reading in March that came in at 51.0.

Daily Forecast

On Wednesday, the Fed is expected to be the catalyst that drives the Australian and New Zealand Dollars. The central bank is largely expected to keep rates unchanged, but investors will look for clues about where the central bank thinks the economy is headed.

Expectations for a rate cut at this meeting are just at 4%, according to the CME Group’s Fed Watch tool. But the market has fully priced in lower overnight rates by October, Fed Watch shows.

The key issue for Fed policymakers will be how to explain the perceived disappearance of the trade-off between unemployment and inflation.