With the dust still settling on last night’s red-hot U.S inflation data, attention locally will turn to an Antipodean doubleheader tomorrow in the shape of Q2 NZ GDP and the Australian August labour force report.
While neither of the data points is likely to cause the magnitude of reaction seen today, both have a role to play in the narrative around the speed of policy tightening by the RBNZ and RBA.
As well as having a say on whether AUDNZD currently trading at almost five-year highs can continue higher.
Q2 New Zealand GDP data is due to drop at 8.45 am Sydney time. Following a 0.2% contraction in Q1 as Omicron ripped through the country, the reopening of international borders that has seen the resumption of overseas tourists and students is expected to see a 1.6% rise in Q2.
Despite the rapid cooling in the housing market, high inflation is expected to see the RBNZ continue to hike rates from 3% to 3.75% by November.
The Australian labour force report for August, due at 11.30 am Sydney time tomorrow, is expected to see a 50k rise in employment and for the unemployment rate to hold at a record low of 3.4%, and the participation rate to rise to 66.7%.
The strong jobs market was likely behind a lift in consumer confidence yesterday and supported by lower petrol prices and the shock value of aggressive RBA rate hikes wearing off.
In this case, there is no reason for the RBA not to continue tightening further into the restrictive territory into yearend to tame spiralling inflation and to cool a tight labour market. The market sees the cash rate ending the year near 3.35%.
Turning to the cross rate, AUDNZD is currently eyeing the 1.1290 high of 2017, supported by buoyant energy and commodity prices, which have kept Australia’s Terms of Trade at record highs despite the slow down in China.
While the rally does look a little overbought in the short term, should AUDNZD see a sustained break of 1.1290, look for the rally to extend towards the August 2015 1.1472 high.