Fundamental Daily Forecast AUD / USD and NZD / USD – Strong New Zealand Jobs Data Calls RBNZ Rate Hike
The Australian and New Zealand dollars are slightly higher on Wednesday morning as traders position ahead of today’s release of the US Federal Reserve’s key monetary policy decisions at 6:00 p.m. GMT.
The Australian move is likely fueled by profit taking after a massive selloff on Tuesday, following the release of an accommodative monetary policy statement by the Reserve Bank of Australia (RBA). The Kiwi also sold off strongly in response to the Aussie’s move, but today’s initial strength is likely driven by better-than-expected New Zealand employment data.
At 01:57 GMT, the AUD / USD is trading at 0.7435, up 0.0007 or + 0.09% and the NZD / USD is at 0.7123, up 0.0013 or + 0.18%.
Central Bank of New Zealand signals inflation risks and healthy financial system
New Zealand’s central bank warned on Wednesday that growing global inflation risks could lead to higher interest rates and lower asset values.
In its semi-annual financial stability report, the Reserve Bank of New Zealand (RBNZ) said the country’s financial system remains resilient in the face of COVID-19.
But he noted that more persistent inflationary pressures and any increase in inflation expectations, coupled with weaker growth, could lead to a sudden tightening of financial conditions.
“With the risk of global inflation heightened, already stretched asset prices are facing headwinds from rising global interest rates,” said RBNZ Governor Adrian Orr.
New Zealand unemployment rate drops to record high in third quarter
New Zealand’s unemployment rate fell to an all-time high equal to the third quarter, beating expectations and pushing the Kiwi dollar higher as markets bet the data will push interest rates up again later this month- this.
The unemployment rate fell to 3.4% in the quarter ending September, according to Statistics New Zealand data, well below the 3.9% forecast from economists polled by Reuters.
Wage growth was strong in the quarter, with the private sector labor cost index (ICT) rising 0.7%, although just below an expected increase of 0.8%.
Seasonally adjusted employment jumped 2.0% in the quarter, beating expectations of a 0.4% increase. The turnout was 71.2%, higher than the 70.6% expected.
On Wednesday, the Federal Reserve is expected to broadly announce the unwinding of its monthly bond buying program – a move it has begun to support the economy during the pandemic. However, the bigger story for the markets is how the central bank will discuss inflation.
Indeed, report after report, higher than expected inflation has bolstered expectations that the Fed will fight the upward trend in prices by starting to hike interest rates next year, about six months earlier than expected. the latest Federal Reserve forecast.
Traders are currently anticipating more than two interest rate hikes for next year, while the majority of Fed officials don’t even see one in 2022 in their recent forecast.
Expect a sharp breakout of the AUD / USD and NZD / USD if the Fed signals three rate hikes in 2022. The Australian dollar would be particularly hard hit due to the accommodating tone of yesterday’s RBA policy statement . The New Zealand dollar could weaken, but gains would be limited as the RBNZ is expected to announce another rate hike later this month.
For an overview of all of today’s economic events, check out our economic calendar.
This article originally appeared on FX Empire