AUD/USD and NZD/USD Fundamental Daily Forecast – NZ Jobless Rate Stays Near Record Low, Wages Rise

The New Zealand and Australian Dollars are inching higher early Wednesday as investors adjust positions ahead of today’s major U.S. Federal Reserve monetary policy and interest rate decisions.  The announcements will be made at 18:00 GMT.

The Fed is widely expected to raise interest rates by 75-basis points and then signal that it could reduce the size of its rate hikes starting as soon as December. The key word is “could”. This means traders are going to have to interpret the tone of the Fed, which could be the source of volatility later in the session.

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At 02:51 GMT, the NZD/USD is trading .5862, up 0.0023 or +0.39% and the AUD/USD is at .6410, up 0.0017 or +0.27%. On Tuesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $63.33, up $0.04 or +0.06.

New Zealand also released key employment data earlier in the day. The reports showed New Zealand’s job market remained tight in the third quarter, with the unemployment rate remaining near record lows and wages soaring.

New Zealand’s Job Market Remains Tight in Third Quarter

According to Stats NZ in a report released early Wednesday, New Zealand’s jobless rate stood at 3.3% in the third quarter, unchanged from the second quarter, while labor underutilization eased slightly.

The underutilization rate, a broader measure of spare labor capacity, dipped slightly to 9.0%, from 9.2% last quarter.

The labor force participation rate rose to 71.7% and the employment rate rose to 69.3%. Both are the highest rates recorded since the job market survey began in 1986, Stats NZ added.

Finally, over the year to the third quarter, the labor cost index increased 3.7%, compared with 3.4% in the prior quarter.

Daily Forecast

All eyes will be on the Fed at 18:00 GMT. We expect the Fed to follow-through with market expectations and announce a 75-basis point rate hike.

We also think Fed Chair Powell, in his post-meeting press conference, will say that policymakers discussed slowing the pace of rate hikes but did not commit to it. Furthermore, he may suggest that the decision to reduce the size of the December rate hike to 50-basis points will be data dependent.

This means traders will be flip-flopping between 75-basis points and 50-basis points in reaction to Friday’s Non-Farm Payrolls report and next week’s consumer inflation report. The Fed will also be monitoring growth data such as PMI and GDP reports.

We’re probably going to enter a period of heightened volatility because if the Fed can’t commit to a 50-basis point rate hike in December then investors are not likely to commit either until they see how the upcoming reports on labor and inflation play out.

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