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The Australian and New Zealand Dollars are facing a crucial twenty-four hours as markets weigh Federal Reserve policy against upcoming domestic data releases, according to David Forrester, FX strategist at Crédit Agricole.
"The AUD and NZD have been performing well so far this week on the back of a weaker USD and investors ramping up expectations of aggressive Fed rate cuts," sys Forrester.
He adds, "the risk of a hawkish cut could hurt the Antipodean currencies’ rallies."
But the outlook will not only be shaped by the Fed.
Forrester said, "the release of NZ GDP and Australian labour market data on Thursday will also be important drivers of the AUD and NZD."
"Technically, while above 0.6600, I will remain long AUD although tomorrow morning’s Employment data could easily be more important to the view, at least in the short term," says a note from JP Morgan's AUD trader, referencing his stance on the AUD/USD ahead of key events.
Despite recent headlines about layoffs in Australia’s financial sector, the impact will not be felt in this week’s numbers.
"These job losses are likely to show up in data from September onward and not in tomorrow’s August labour market report," said Forrester. "Leading indicators point to Australian employment growth remaining robust, likely keeping the unemployment rate below the RBA’s 4.3% forecast for H225."
Above: GBP/NZD (top) and GBP/AUD at daily intervals.
Earlier this week, Reserve Bank of Australia Assistant Governor and Chief Economist Sarah Hunter reinforced the data-dependent stance of policymakers.
"The path of rates is data-dependent and that the risks to the economy are evenly balanced," said Hunter, noting the central bank is close to achieving full employment and low inflation.
Looking at the NZD, attention will falls on New Zealand GDP figures.
"NZ’s GDP data risks surprising the RBNZ to the upside,” with growth momentum looking stronger than policymakers had assumed," says Forrester.
He explains that "a large part of the central bank’s recent dovish shift has been based on economic growth and the recovery going into reverse in Q2 and contracting by -0.3% QoQ due to the uncertainty generated by US President Donald Trump’s Liberation Day tariffs."
A positive growth reading would certainly see the market (and RBNZ) unwind expectations of a terminal OCR rate of 2.50% and another two 25bp rate cuts.
On paper, this would bolster the NZD.