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James Hyerczyk
AUD/USD and NZD/USD
AUD/USD and NZD/USD

The Australian and New Zealand Dollars are trading mixed early Thursday after posting solid gains the previous session. Yesterday’s rally was fueled by the news that Washington was seeking a new round of trade talks with Beijing. This reduced safe-haven demand for the U.S. Dollar.

The Aussie is also getting a boost from better-than-expected employment data. Australia’s employment rose a strong 44.0K in August, more than reversing the modest 4.3K drop in July. Over the past three months, employment has risen an average of 33K per month. The strength was due to a sharp rise in full-time jobs (33.7K), while part-time jobs also rose (10.2K). The Unemployment Rate was stable at 5.3 percent, while the participation rate rose 65.7 percent.

There were no major reports from New Zealand, however, short-sellers took the opportunity to cover positions after the news about the US-China meeting broke.

At 0735 GMT, the AUD/USD settled at .7188, up 0.0018 or +0.25% and the NZD/USD finished at .6554, down 0.0005 or -0.07%.

In the U.S. on Wednesday, the Labor Department reported U.S. producer prices unexpectedly fell in August with the weakness led by declines in the prices of food and a range of trade services. The decline could have been worse if not for an increase in the cost of energy products.

Additionally, the Federal Reserve’s latest Beige Book released late Wednesday showed three of the Fed’s 12 districts – St. Louis, Philadelphia and Kansas City – reported weaker growth in August. Fed Governor Lael Brainard

Finally, Fed Governor Lael Brainard said in a speech on Wednesday that the Federal Reserve likely will continue gradual interest rate increases but will accelerate the pace if signs that financial imbalances continue to build.

Forecast

Optimism over a softening of U.S.-China relations is providing the fuel underpinning the Aussie and the Kiwi. However, the initial move is likely position-squaring, short-covering and profit-taking, following a prolonged move down in terms of price and time. It is going to take the end of the trade dispute to fuel a meaningful change in trend.

Furthermore, the Australian employment news means nothing to the trend, but it does force investors to make position adjustments and that’s what we’re looking at today. While the report beat expectations, the major concern for the Reserve Bank of Australia is inflation. They are hoping that a strong labor market will eventually lead to higher wages.

U.S. economic data and Fed speakers will likely drive the price action on Thursday. I don’t expect to hear anything major about the U.S.-China negotiations until after the meeting takes place.

In the U.S., Consumer Inflation is expected to have grown 0.3% in August. Core Consumer Inflation is expected to have risen by 0.2%.

Weekly Unemployment Claims are expected to come in at 210K. The Federal Budget Balance is forecast at -169.8 Billion, versus the previously reported -76.9 Billion.

We’re also going to hear from FOMC Members Quarles and Bostic. Traders will be looking for clues as to the pace and the number of interest rate increases to expect the rest of the year and next year.

China releases a slew of data early Friday including Fixed Asset Investment, Industrial Production, Retail Sales, Unemployment Rate and Foreign Direct Investment.

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