AUD/USD and NZD/USD Fundamental Daily Forecast – NZ Jobless Rate Falls to Fresh Nine-Year Low

Position-squaring ahead of the Fed’s interest rate decision and monetary policy statement at 1800 GMT is helping to boost the Australian and New Zealand Dollars early in the session on Wednesday.

At 0716 GMT, the AUD/USD is trading .7517, up 0.0030 or +0.40%. The NZD/USD is at .7017, up 0.0018 or +0.21%.

Earlier in the session, it was reported that New Zealand’s jobless rate fell to a fresh nine-year low in the first quarter, adding to signs that sluggish wage growth will eventually pick up.

The jobless rate fell to 4.4 percent from 4.5 percent in the previous three months, the lowest since the final quarter of 2008 and in line with economists’ forecasts.

Employment rose 0.6 percent and the participation rate fell to 70.8 percent, Statistics New Zealand said Wednesday in Wellington.

Lower unemployment and falling immigration may lift wages and start to generate broader price pressures. Still, with inflation languishing near the bottom of the 1-3 percent target range, the Reserve Bank has signaled it’s unlikely to raise interest rates until mid-2019.

In U.S. economic news, the ISM manufacturing index hit 57.3 in April. Home prices surged 7 percent higher in March compared with a year ago, making the gain the biggest since May 2014. Construction spending came in below expectations at -1.7%.

Forecast

The Federal Open Market Committee (FOMC) began its two-day monetary policy meeting on Tuesday. Most investors are not expecting the central bank to tighten its policy. Expectations in the market for a rate hike are just 5.7 percent, according to the CME Group’s Fed Watch tool.

However, traders will be looking at the monetary policy statement for clues about the central bank’s views on inflation and the economy. The statement may also reveal the central bank’s thoughts on future rate hikes. At this time, traders are pricing in a quarter-point rate hike for June.

The divergence between the monetary policies of the U.S. Federal Reserve and the Reserve Bank of Australia and the Reserve Bank of New Zealand will continue to drive the price action. This means the interest rate differential between U.S. Government Bonds and Australian and New Zealand Government Bonds will continue to widen, making the U.S. Dollar a more attractive investment.

We’re probably due for a technical bounce on the charts because I believe the Fed’s statement is already priced into the AUD/USD and NZD/USD. However, the Forex pairs could plunge further if the Fed hints at a fourth rate hike this year.