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AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Rate Cut Off Table; Coronavirus Impact New Wildcard

The employment report is good news for Australian Dollar bulls and discouraging news for short-sellers betting on a February rate cut. Now they have to reset the clock to April or May so selling the AUD/USD on rallies may not be sound advice unless the coronavirus scare spooks investors into dumping the currency because of Australia’s ties to China’s economy.
James Hyerczyk

The Australian and New Zealand Dollars are trading mixed on Thursday with better than expected labor market data fueling the gains in the Aussie. The price action in the Kiwi suggests investors are sitting on the sidelines ahead of Friday’s quarterly report on consumer inflation. Gains in both markets are likely being capped by fears over the spread of the coronavirus which has been blamed on at least 17 deaths in China.

At 08:32 GMT, the AUD/USD is trading .6872, up 0.0028 or +0.40%.

Australia Jobless Rate Hits Nine-Month Low

Australian employment outpaced forecasts for a second month in December pushing the jobless rate to a nine-month low, a much-needed improvement that could forestall a near-term cut in interest rates.

Thursday’s data showed 28,900 net new jobs were created in December, beating forecasts of 15,000 and on top of a surprisingly strong 38,400 gain in November.

The unemployment rate edged down a tick to 5.1%, the lowest reading since March last year and again under forecasts.

The breakdown on employment was a little less encouraging, with all the new jobs being part-time and full-time positions actually dipping by 300.

Analysts Give Up on February Rate Cut

After the release of the employment data, investors betting on a rate cut by the Reserve Bank of Australia (RBA) in February, covered their short positions. Futures shifted to imply a 20% chance of a quarter-point easing next month, compared with 50% ahead of the jobs data.

A move to 0.5% was still priced at 78% by May, though again that was down from almost 100% before the report.

Analysts at several major banks, including CBA, ANZ and Citi, threw in the towel on a February cut though they still expect a move at some point.

Daily Forecast

The employment report is good news for Australian Dollar bulls and discouraging news for short-sellers betting on a February rate cut. Now they have to reset the clock to April or May so selling the AUD/USD on rallies may not be sound advice unless the coronavirus scare spooks investors into dumping the currency because of Australia’s ties to China’s economy.

“The final employment report for 2019 was a solid one,” said Gareth Aird, a senior economist at CBA. “The labor market continues to defy the activity data.”

“It’s too soon to say rate cuts are done, but bottom line, we have removed the February rate cut in our forecasts and pushed it back to April.”

Today’s jobs reports are likely to fuel a meaningful short-covering rally because the February rate cut has been taken off the table.

The wildcards are the bushfire damage to the economy and the outbreak of the coronavirus, and its potential impact on the global economy. Both of these events have the potential of limiting gains and triggering a steep decline in the Aussie.

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