AUD/USD and NZD/USD Fundamental Daily Forecast – Supported by Domestic Data, Weaker U.S. Dollar

The Australian and New Zealand Dollars closed higher on Thursday as investors continued to react to strong domestic data and a weaker U.S. Dollar.

The AUD/USD settled at .7713, up 0.0038 or +0.50% and the NZD/USD closed at .6912, up .0026 or +0.38%.

The Australian Dollar rose early in the session after data showed the Aussie trade surplus widening further than was expected.

Australia’s trade surplus rose from $0.87 billion to $1.75 billion during September when economists has forecast a much smaller increase to $1.42 billion.

Surging iron ore exports were behind September’s outsized increase in the surplus, with higher iron ore prices conspiring with increased shipments to boost the value of international raw materials exports.

The New Zealand Dollar continued to gain upside momentum on Thursday after the government reported bullish employment data on Wednesday. According to the latest labor market statistics, wages grew and unemployment fell in the September quarter.

Unemployment data for the three months ending September was 4.6 percent, 0.2 percentage points lower than the prior quarter and the lowest level since the December 2008 quarter, according to Statistics New Zealand. Wage rates increased 1.9 percent.

The U.S. Dollar retreated after Republicans in the U.S. House of Representatives released proposals to overhaul the tax code.

A summary of the document revealed that the plan calls for slashing the corporate tax to 20 percent from 35 percent and reducing the number of tax brackets for individuals.

The dollar weakened because the initial proposal is not likely to pass into law quickly and investors believe that it’s not enough to be meaningful. Some are doubtful that it’ll have any significant impact on the overall GDP of the country.

Over the long-run, cutting taxes would increase spending, drive inflation and U.S. interest rates higher, and make the U.S. Dollar more attractive. However, since the process to become law may be lengthy, the proposal is having no bullish impact on the dollar at this time.

In other news, the Challenger Job Cuts report came in at -3.0%. This report represents the change in the number of job cuts announced by employers. ‘Actual’ less than ‘Forecast’ is good for the U.S. Dollar. Last month, the report came in at -27%.

Weekly Unemployment Claims were 229K, better than the 235K estimate and 234K previous reading.

Preliminary Nonfarm Productivity was 3.0%. This was slightly worse than the 2.5% forecast. The previous number was raised to 1.5%.

Preliminary Unit Labor Costs were 0.5%, matching the forecast. The previous report was revised downward to 0.2%.

In other news, Fed Governor Jerome Powell delivered a speech Thursday morning but dropped no hints about his impending appointment to lead the central bank.

In his speech, Powell discussed Libor, or the rate that banks charge each other for short-term loans. Wall Street is transitioning away from the rate, a process that Powell said will be costly but important for the financial system’s integrity.

“So, while much has been done, there is more still to do. I have been heartened in seeing that many participants are already confronting these issues,” Powell said in his prepared remarks.

Late in the day, President Trump nominated Fed Governor Jerome Powell to become the central bank’s next chair. Powell’s nomination was widely expected by experts and most investors. He is dovish like current Chair Janet Yellen so investors expect to see the gradual raising of interest rates into the future.

Forecast

Earlier today, in Australia, the AIG Services Index came in at 51.4, lower than the previous read of 52.1. Retail Sales were flat at 0.0%, coming in below 0.4%.

In China, the Caixin Services PMI is expected to come in at 50.8, up slightly from the previous read.

On Friday, the U.S. will release its latest labor market data. The Non-Farm Employment Change is expected to show the economy added 312K jobs in October. The Unemployment Rate is expected to remain unchanged at 4.2 percent and Average Hourly Earnings are expected to rise 0.2%, lower than the previous 0.5% increase.

The U.S. Trade Balance is expected to deepen slightly, coming in at -43.3 billion versus the previous -42.4 billion.

The ISM Non-Manufacturing PMI is expected to dip from 59.8 to 58.5. Factory Orders are expected to increase slightly by 1.3%.

Oversold technical conditions and the shift in momentum caused by the Australian and New Zealand domestic data could continue to support the AUD/USD and NZD/USD for a few more days, but the overall trend is down because of the divergence in monetary policies between the Fed and the Reserve Bank of Australia and Reserve Bank of New Zealand. Therefore, we believe this current short-term rally will turn into a shorting opportunity.