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James Hyerczyk

The Australian and New Zealand Dollars are trading mixed early Wednesday with the Aussie posting a small gain and the Kiwi edging slightly lower. Domestic economic news, central bank expectations and U.S. economic activity is driving the price action this week. Investors are also keeping an eye on the progress of the U.S.-China trade talks.

At 06:24 GMT, the AUD/USD is at .6895, up 0.0002 or +0.02% and the NZD/USD is trading .6371, down 0.0002 or -0.03%.

Australian Dollar

Earlier in the week, the Australian Dollar was under pressure after official data showed that Australian consumer spending slowed in October. Retail Sales rose only 0.2% month-on-month in September following August’s 0.4% rise, the Australian Bureau of Statistics reported on Monday. Traders were looking for a reading of 0.4%.

On Tuesday, the Aussie moved high enough to challenge last week’s high at .6930 and its highest level since July 26 after the Reserve Bank of Australia (RBA) held interest rates steady as expected at its policy review, as it gauged the impact of three cuts already delivered this year, while leaving the door open for further stimulus if needed.

RBA Governor Philip Lowe said the economy was showing signs of life after three cuts this year. This strongly suggested central bank policymakers will pause further rate cuts.

“After a soft patch in the second half of last year, a gentle turning point appears to have been reached,” Lowe said in a statement following the RBA’s monthly policy meeting.

Tuesday’s gains, however, were offset by stronger than expected ISM US Manufacturing PMI data, which made the U.S. Dollar a more attractive asset. The lack of fresh developments in U.S.-China trade talks also weighed on the Aussie.


New Zealand

A report early Wednesday showed that New Zealand unemployment increased more than expected in the third quarter and employment growth slowed, adding to signs of a sluggish economy that could prompt the Reserve Bank of New Zealand (RBNZ) to cut interest rates further next week.

The jobless rate rose to 4.2% from 3.9% in the second quarter, Statistics New Zealand said Wednesday in Wellington. Economists predicted an increase to 4.1%. Employment gained 0.2% from the previous three months and 0.9% from the year-earlier quarter – the slowest annual pace since 2013.

Daily Forecast

The weak jobs data is causing problems for NZD/USD traders because the majority of economists expect the RBNZ to cut the official cash rate to a fresh record low of 0.75% on November 13, while traders are less certain. The financial markets now see a 61% chance of a cut, up from 56% earlier Wednesday but down from 100% last month.

Bloomberg says, “Hiring is slowing as economic growth declines toward 2%, suggesting inflation could remain below the mid-point of the RBNZ’s 1-3% target for some time. Still, wages are picking up, the housing market is recovering and domestic price pressures are building, making next week’s rate decision a tough call.”

We’re expecting further downside pressure in the NZD/USD as we approach the November 13 RBNZ meeting date. Professional investors tend to sell when there is uncertainty.

Aussie traders are going to have a tougher time selling because RBA forward-guidance is clearer. If there is weakness then it will probably be triggered by stronger U.S. economic data and renewed tensions over U.S.-China trade relations.

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