AUD/USD and NZD/USD Fundamental Daily Forecast – Sellers Spooked by Strong US Data as Treasury Yields Rise

The Australian and New Zealand Dollars are trading flat early Friday as traders shuffled positions ahead of Friday’s key U.S. Non-Farm Payrolls report, due to be released at 12:30 GMT. That wasn’t the case on Thursday, however, as the Aussie and Kiwi plunged following the release of solid U.S. labor market reports. The news raised concerns over U.S. policy tapering that drove U.S. Treasury yields and the U.S. Dollar higher.

At 04:00 GMT, the AUD/USD settled at .7660, down 0.0001 or -0.01% and the NZD/USD finished at .7147, up 0.0001 or +0.02%.

After posting a month-long trading range, the currencies may have finally broken out to the downside after the release of the U.S. reports triggered a round of stop-loss selling and turned the technical outlook bearish.

US Data Provides the Catalyst for Aussie, Kiwi Breakdown

The spike to the downside by the Aussie and Kiwi was fueled by a rise in U.S. bond yields as two new data releases pointed to a continued recovery in the U.S. labor market.

Private payrolls rose more than expected in May, according to a report from ADP, while weekly jobless claims came in near expectations at 385,000. That continues a downward trend in initial claims. The Bureau of Labor Statistics is scheduled to release the May jobs report Friday morning.

The ADP and jobless claims reports stoked fears the Federal Reserve might consider when to start tapering its asset buying, scaring equities and lifting bond yields.

RBA Expected to Start Tapering on Its Own

The Reserve Bank of Australia (RBA) is expected to start tapering of its own at its July policy meeting, with most of the market assuming it will not extend its three-year yield target to the November 2024 bond.

RBA’s Debelle Reiterates Policy Isn’t Tool to Cool House Prices

Reserve Bank of Australia Deputy Governor Guy Debelle acknowledged that a hot property market fueled by emergency-low interest rates has “distributional consequences,” while reiterating that monetary policy isn’t the right tool to address the issue.”

“We recognize that rising house prices heighten concerns in part of the community,” Debelle said in a Podcast released Thursday, in which the RBA’s senior leadership team recounted the bank’s responses to the pandemic. “There are a number of tools that can be used to address the issue, but I don’t think that monetary policy is one of those tools.”

Daily Outlook

Traders are now awaiting the release of the U.S. Non-Farm Payrolls report at 12:30 GMT. The results of this report could set the tone at central bank meetings later this month. Wall Street economists’ consensus forecast was for 650,000 new U.S. jobs last month. The Unemployment Rate is expected to drop from 6.1% to 5.9% and Average Hourly Earnings are forecast to increase 0.2%.

The AUD/USD and NZD/USD could extend their losses if the headline number comes in stronger-than-expected. This news would likely increase the chances of the Fed discussing the start of tapering its bond purchases at its mid-June policy meeting.