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James Hyerczyk

The Australian and New Zealand Dollars are trading lower early Thursday in the wake of disappointing labor market news from Australia and weaker-than-expected economic news from China. The news is hitting the Aussie the hardest, but the Kiwi is also under pressure. Apparently, the impact of the Reserve Bank of New Zealand’s (RBNZ) decision to leave rates on hold on Wednesday, has already worn off.

At 05:15 GMT, the AUD/USD is trading .6797, down 0.0041 or -0.60% and the NZD/USD is at .6389, down 0.0023 or -0.35%.

Australia Suffers Big Jobs Loss

Reuters is reporting that Australian employment suffered its sharpest fall in three years last month, data showed on Thursday, underlining the need for urgent stimulus to revive economic activity and wages.

According to government data, net new jobs fell 19,000 in October, the largest drop since late 2016. The unemployment rate also nudged up to 5.3%, reversing a promising dip in September. Analysts polled by Reuters had forecast a gain of 15,000 jobs and an unemployment rate of 5.3%.

Wage growth also a concern for the RBA. Last week, central bank policymakers predicted miserly annual growth of 2.3% right out to 2021. Data on Wednesday showed wage growth actually went backward to 2.2% in the September quarter.

The AUD/USD plunged after the report was released as financial market traders narrowed the odds on a rate cut from the Reserve Bank of Australia (RBA) in December, though it was still considered an outside chance. Financial markets imply around a 24% probability of a quarter-point easing at the RBA’s next meeting on December 3, rising to 62% for February.

The weak report has also renewed calls for fiscal stimulus. Prime Minister Scott Morrison has so far resisted call for action, in part citing continued strength of the labor market.


Aussie and Kiwi Pressured as China’s Economy Grinds Lower

Also contributing to the weakness in the Aussie and Kiwi was the news that China’s industrial output grew significantly slower than expected in October, as weakness in global and domestic demand and the drawn-out Sino-U.S. trade war weighed on activity in the world’s second-largest economy.

Indicators showed other sectors are slowing significantly and missing forecasts with retail sales growth back near a 16-year trough and fixed asset investment growth the weakest on record.

The disappointing economic data adds to the case for Beijing to roll out fresh support for the economy after China’s economic growth slowed to its weakest pace in almost three decades in the third quarter.

Daily Forecast

The selling pressure on the Aussie and Kiwi is likely to continue on Thursday unless there is a positive development over the trade deal. Even if that is the case, the move is likely to be fueled by short-covering rather than new buying. The Australian Dollar may not even reach a bottom until investors figure out what the RBA will do at its next meeting on December 3.

Additionally, traders will get the opportunity to react to U.S. data on Producer Inflation and Weekly Unemployment Claims. The Fed will also be in play with FOMC Members Clarida and Evans speaking and Fed Chair Jerome Powell testifying before Congress.

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