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AUD/USD and NZD/USD Fundamental Daily Forecast – Despite Solid Employment Data, RBA Not Likely to Alter Dovish Tone

After posting a two-day setback, the Australian Dollar has come roaring back in reaction to stronger-than-expected employment data, putting the currency in a position to change the trend to up on the daily chart. Meanwhile, the New Zealand Dollar is moving lower due to lack of follow-through buying following yesterday’s technical reversal bottom.

At 0456 GMT, the AUD/USD is trading .7419, up 0.0021 or +0.30% and the NZD/USD is at .6784, down 0.0011 or -0.16%.

The Australian Dollar surged early Thursday after positive employment data drove short-term domestic bond yields higher, however, the data isn’t likely strong enough to alter the monetary policy of the Reserve Bank of Australia.

The data released earlier in the session showed the Australian economy added 50.9K jobs, a significant jump from the 16.7K forecast and the 13.4K previous reading.

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Officially, according to Australia’s Bureau of Statistics (ABS), employment jumped by 50,900 in seasonally adjusted terms, beating the median economist forecast that was looking for an increase of 16,500.

May’s increase in employment, previously reported at 12,000, was also revised higher to 13,500.

Investors were especially impressed by the split in hiring which showed full-time employment jumping by 41,200, continuing the pattern of reversing the move reported one month earlier. Part-time employment also increased, lifting by 9,700 over the month.

Total employment now stands at 12.573 million, the highest level on record. Over the past year, full-time employment increased by 158,200, outpaced by an 180,800 lift in part-time employment.

Despite the surge in hiring, the unemployment rate held steady at 5.4%, courtesy of a sharp lift in labor force participation. Without rounding, the unemployment rate now stands at the lowest level since November 2012.

Forecast

The AUD/USD is being underpinned early Thursday because at face value, today’s strong employment data is very good news. However, there are still some sticking points in the economy, namely a high level of underutilized workers and low wages. With unemployment and underemployment still comparatively high, it continues to weigh on wage pressures despite strong unemployment growth.

While we expect to see some upside pressure due to position-adjustments related to changes in the short-term interest rate differential between U.S. Government bond yields and Australian Government bond yields, the overall trend in the AUD/USD is down because of the divergence in the monetary policies of the hawkish U.S. Federal Reserve and the dovish Reserve Bank of Australia.

Furthermore, although the RBA is likely to be pleased with the results of the report, it is unlikely to begin raising interest rates until tight labor market conditions begin increasing wages and eventually inflation. This is why the current rally is expected to be short-lived.

This article was originally posted on FX Empire

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