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AUD/USD and NZD/USD Fundamental Daily Forecast – Pulling Back from Highs after Solid US Jobs Data

James Hyerczyk

The Australian and New Zealand Dollars are trading higher on Friday with traders still adjusting positions to the news that their respective central banks may pass on interest rate cuts in November. At the same time, the U.S. Federal Reserve just cut rates on Wednesday, weakening the U.S. Dollar. Furthermore, the central bank may have hit the pause button on additional rate cuts, while signaling it won’t raise rates until inflation is “significantly” higher.

At 12:26 GMT, the AUD/USD is trading .6902, up 0.0008 or +0.11% and the NZD/USD is at .6435, up 0.0022 or +0.33%.

Weaker than expected U.S. economic data on Thursday is also weighing on the U.S. Dollar. Meanwhile, traders are positioning themselves ahead of the U.S. Non-Farm Payrolls report at 12:30 GMT and the ISM Manufacturing PMI report at 14:00 GMT. Both reports could be the source of volatility today.

NZD Gains after Westpac Nixes November Rate Cut Prediction

The New Zealand Dollar is getting a lift from the news that Westpac Bank pared back its rate cut expectations, at least in the short-term.

Financial market trader expectations for a rate cut in November fell sharply when Westpac Bank chief economist Dominick Stephens said it was no longer expecting a rate cut.

“The balance of recent domestic data does not justify a cut, global sentiment has improved and overseas central banks have indicated they will pause,” he said.

Traders have been particularly receptive to domestic inflation that has been stronger than expected and the housing market that has been showing signs of life.

Nonetheless, gains in the New Zealand Dollar could be limited because Stephens expects the central bank to be open to future rate cuts and still expects another 25 basis point cut in February “based on our view that global economic sentiment will worsen again.”

After Westpac changed its mind about a rate cut, the New Zealand financial markets began pricing in only a 50% chance of a rate cut on November 12.

Daily Forecast

The Aussie and Kiwi pulled back from their highs on Friday in reaction to the U.S. Non-Farm Payrolls report. Non-Farm payrolls rose by 128,000 in October as the U.S. economy overcame the weight of the autoworkers’ strike and created jobs at a pace well above expectations.

The unemployment rate ticked higher to 3.6%, in line with estimates, but remains around the lowest in 50 years. The pace of average hourly earnings picked up a bit, rising one-tenth of a percent to a year-over-year 3% gain, also in line with estimates. The average work week was unchanged at 34.4 hours.

Along with the better than expected performance in October, previous months’ counts were revised considerably higher. August’s initial 168,000 estimate came all the way up to 219,000 while September’s jumped from 136,000 to 180,000.

Traders are now awaiting the ISM Manufacturing PMI report, due to be released at 14:00 GMT. It is expected to come in at 49.0, up from the previously related 47.8. Despite the expected slight increase, a reading under 50.0 will still indicate the sector is in contraction.

This article was originally posted on FX Empire