AUD/USD and NZD/USD Fundamental Daily Forecast – Mixed Performance after Fed Fuels Short-Covering Rally

The Australian and New Zealand Dollars are putting in mixed performances early Thursday after reversing to the upside the previous session following a softer-than-expected Federal Reserve monetary policy statement.

The Aussie is moving higher and the Kiwi is lower, but being underpinned after the U.S. Federal Reserve began trimming bond buying but sounded guarded on when it might actually hike rates. The news triggered a short-covering rally that boosted both currencies that had been under pressure earlier in the session.

At 03:18 GMT, the AUD/USD is trading .7460, up 0.0011 or +0.14% and the NZD/USD is at .7160, down 0.0004 or -0.05%.

Ahead of the Fed announcements, the Australian Dollar was being pressured after the Reserve Bank of Australia (RBA) pushed back on aggressive pricing for 2022 hikes although it did abandon its short-term yield target and dropped its expectation of holding rates at record lows until 2024.

The falling Aussie dragged down the Kiwi, but it recovered following the release of strong labor data.

Fed Less-Hawkish than Expected

The AUD/USD and NZD/USD were under pressure ahead of the Fed announcements on Wednesday as traders priced in the possibility policymakers would commit to a rate hike timetable. However, the dollar eased against both currencies after the Fed said it would begin unwinding its pandemic-era stimulus, but held to its belief that high inflation would prove “transitory” and likely not require a rapid rise in interest rates.

Ahead of the Fed’s decisions, traders were expecting the central bankers to approve plans to scale back its $120 billion monthly bond-buying program put in place to help the economy during the coronavirus pandemic, while investors were also be focused on commentary about interest rates and how sustained the recent surge in inflation is.

The Fed encouraged Aussie and Kiwi short-sellers to take profits and square positions when it announced a $15 billion monthly cut to its $120 billion in monthly purchases of Treasuries and mortgage-backed securities, but did little to signal when it may begin the next phase of policy “normalization” by raising interest rates.

Domestic Economic News

In New Zealand, the ANZ Commodity Prices report came in at a robust 2.1%, up from 1.5%. In Australia, month Retail Sales data met expectations at 1.3% and the Trade Balance came in as forecast at 12.24B.

On Friday, the RBA will release its Monetary Policy Statement.

Short-Term Outlook

The focus now shifts to the U.S. labor market since this is one of the factors the Fed would like to see improve before it starts raising rates. Stronger-than-expected U.S. labor market data would keep the upward pressure on Treasury yields that could make the U.S. Dollar a more attractive investment versus the Australian and New Zealand Dollars.

Private sector job creation popped higher in October thanks to a burst in hiring in the hospitality sector, payroll processing firm ADP reported Wednesday.

Companies added 571,000 for the month, beating the 395,000 Dow Jones estimate and just ahead of September’s downwardly revised 523,000. It was the best month for jobs since June.

On Thursday, traders will get the opportunity to react to the latest report on Weekly Jobless Claims. According to the estimates, Weekly Unemployment Claims likely fell to 273K, down from the previously reported 281K.

On Friday, the government’s Non-Farm Employment Change report is expected to show the economy added 455K jobs in October. The Unemployment Rate is expected to edge lower from 4.8% to 4.7%. Average Hourly Earnings are expected to rise 0.4%.