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AUD/USD and NZD/USD Fundamental Daily Forecast – Surprise Wage Jump Should Weigh on Aussie, Kiwi

James Hyerczyk
Updated

The Australian and New Zealand Dollars are trading sharply lower on Friday shortly before the release of the January U.S. Non-Farm Payrolls report at 1330 GMT.

The price action suggests that investors finally believe the U.S. economy is just too strong and the U.S. Federal Reserve too aggressive for the Aussie and the Kiwi to continue to maintain their attractiveness as a high-yield currencies.

At 1050 GMT, the AUD/USD is trading .7987, down 0.0052 or -0.64% and the NZD/USD is at .7353, down 0.0041 or -0.55%.

AUDUSD
Daily AUD/USD

According to London-based currency hedge fund manager Mark Farrington, “Eventually this very long expansion and bull market has to end with some kind of recession. Until that day comes all of the potential for a growth, and inflation, surprise and higher rates will come from the US.”

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Farrington added, “Interest rates may have to stay lower for longer in Australia than you would otherwise think in an economy with high exposure to housing and high household leverage.”

In the meantime, the Fed hinted this week that inflation may heat up later this year and it may have to raise rates more than the three times it forecast in December.

In other news, U.S. ISM Manufacturing PMI came in at 59.1, better than the estimate of 58.7, but lower than the previous 59.7.

In New Zealand, Building Contents fell 9.6%. Last month’s number was revised lower to 9.6%. Visitor Arrivals fell 2.8%. Last month’s report showed a 2.5% increase.

In Australia, the quarterly Producer Price Index rose 0.6% versus a 0.4% estimate.

NZDUSD
Daily NZD/USD

Forecast

The direction of the Australian and New Zealand Dollars today will be determined by the movement in the U.S. Dollar. The dollar will be impacted by the U.S. Non-Farm Payrolls report.

Traders are looking for a rise of 180,000 jobs in January after increasing 148,000 in December. The unemployment rate is forecast to be unchanged at a 17-year low of 4.1 percent. Average Hourly Earnings are expected to rise 0.2%.

This week’s ADP Private Sector jobs report suggests the headline estimate is too low. Stronger-than-expected jobs data, lower employment and higher wages would signal strength in the economy, and could in turn strengthen the dollar and pressure the AUD/USD and NZD/USD.

The important number that Aussie and Kiwi traders will be watching is average hourly wages. They are expected to rise 0.2% to 0.3%. If that number is higher, it could surprise the markets and give the U.S. Dollar a much needed boost.

The Forex markets have been volatile this week due to rising interest rates and concerns about inflation, so any signs of wage inflation could add to the momentum.

This article was originally posted on FX Empire

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