AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Calls for ‘Significant Monetary Support’ for “Some Time’

The Australian and New Zealand Dollars are trading mixed on Tuesday after the Aussie gave back earlier gains. The Kiwi is trading at its highest level since January 8. The Australian Dollar retreated after matching its January 14 main top at .7805.

The risk-currencies were supported earlier by a surge in Asia-Pacific stock indexes, but started to pullback after the major U.S. stock indexes gave up earlier gains.

At 08:29 GMT, the AUD/USD is trading .7785, up 0.0005 or +0.06% and the NZD/USD is at .7259, up 0.0032 or +0.44%.

Both currencies extended their gains against the greenback as optimism around a global economic recovery and a spike in oil prices underpinned the commodity-exposed currencies.

The Aussie and Kiwi rose with higher oil prices on Tuesday, as a cold front shut wells and refineries in Texas, the biggest crude producing state in the United States.

The currencies also benefited from stronger iron ore and copper prices, buoyant expectations for a global recovery and vaccine optimism, traders said.

Additionally, Australian 10-year bond yields were pushed wider to 1.33%, the widest since March. At 0.12%, yields on three-year paper remained pinned near the Reserve Bank of Australia’s (RBA) target of 0.10%.

Australia’s Central Bank on Hunt for Much Tighter Labor Markets, Faster Wage Growth

Australia’s central bank believes it will take a significant and sustained tightening in the labor market to lift inflation to more comfortable levels, a tough task that could take years to achieve.

Minutes of the Reserve Bank of Australia’s (RBA) February policy meeting released on Tuesday showed the Board recognized that wage growth had been too subdued for years before the pandemic imposed its own restraints on pay.

Firms had responded to the global uncertainty by delaying wage hikes or freezing wages, and the bank’s liaison suggested it would be some time before such freezes ended.

The government had also responded by limiting public sector pay raises, a trend that could take some time to reverse given rapidly rising borrowing loads.

“A sustained period of labor market tightness would be needed to generate the faster wage growth required to see inflation return to the 2 to 3% target range,” the Board agreed.

The RBA Board recognized that holding rates so low could lead to increasing borrowing and rising asset prices, particularly for housing.

“The Board concluded there were greater benefits for financial stability from a stronger economy, while acknowledging the importance of closely monitoring risks in asset markets,” the minutes showed.

For a look at all of today’s economic events, check out our economic calendar.