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AUD/USD and NZD/USD Fundamental Daily Forecast – Traders Pricing in 40-Percent Chance of Aug. 2019 Rate Hike, Up from 25-Percent

James Hyerczyk
The Aussie Dollar is primarily being helped by the news that traders are now pricing in about a 40-percent chance of a rate hike in August next year, up from 25-percent before the release of the employment data.

The Australian Dollar is trading sharply higher on Thursday with the move being fueled by a better-than-expected labor report. The data confirms the Reserve Bank of Australia’s assessment that the economy is humming along because it continues to keep interest rates at historically low levels. The upside momentum being generated by the news has put the Forex pair in a position to challenge levels not seen since late September.

At 0750 GMT, the AUD/USD is trading .7284, up 0.0052 or +0.69%.

Also underpinning the Aussie is increased demand for risk due to the easing of tensions over Brexit and optimism that the trade dispute between the U.S. and China may be softening due to high level meetings taking place in Washington.

Traders are saying that Australia’s employment situation improved in October due to the RBA’s record-low interest rates. With the dovish central bank spurring hiring, the jobless rate remained at a six-year low despite an expanding workforce.

Traders are also saying that the RBA’s patience with keeping the cash rate at 1.5 percent for more than two years is now being rewarded with stronger employment and faster economic growth. Given the strength of the labor market it may be just a matter of time before this leads to a jump in wage growth and inflation. This has to take place before the RBA will approve its first rate increase since 2010.

The Aussie Dollar is primarily being helped by the news that traders are now pricing in about a 40-percent chance of a rate hike in August next year, up from 25-percent before the release of the employment data.

Forecast

Today’s employment report data is slowing supporting a case for the RBA to start normalizing monetary policy next year. If the current trends persist then look for a quarter-point increase in the cash rate target to 1.75 percent by the fourth quarter of 2019.

This statement is what’s driving today’s price action. You have to remember that with every Fed rate hike, it comes closer to ending its tightening phase. Perhaps at the same time, the RBA will begin raising rates and this will eventually make the Australian Dollar a more attractive investment.

Later today, investors will get the opportunity to react to a slew of U.S. economic reports including Retail Sales, Core Retail Sales, the Philadelphia Fed Manufacturing Index and the Empire State Manufacturing Index.

Additionally, a report will be released on Import Prices and Weekly Unemployment Claims.

FOMC Member Quarles and Bostic are also scheduled to speak. Most importantly, Fed Chair Jerome Powell is scheduled to speak at 1630 GMT.

Earlier today, Powell said the economy “is in such a good place right now” and credited monetary policy for helping to engineer that growth.

This article was originally posted on FX Empire

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