AUD/NZD sees a downside below 1.1070 ahead of Australian employment data

• AUD/NZD is eyeing more weakness below 1.1070 as odds for widening RBNZ-RBA policy divergence soar.
• A sheer RBA’s rate acceleration in a short span of time has resulted in a slowdown in the rate hike pace.
• The consensus for Australian payroll data is lower due to the already tight labor market.

The AUD/NZD pair is on the verge of delivering a downside break of the consolidation formed in a 1.1076-1.1103 range. The asset has turned sideways after a sheer downside movement and is likely to surrender Tuesday’s low at 1.1071. The aussie bulls have weakened after the release of the Reserve Bank of Australia (RBA) minutes on Tuesday.

The minutes from RBA have cleared that the central bank will make gradual steps in hiking its Official Cash Rate (OCR). Rising risks from global and domestic demand have already resulted in a break of 50 basis points (bps) rate hike spell as RBA Governor Philip Lowe announced a rate hike by 25 bps in October monetary policy meeting.

RBA policymakers are of the view that the OCR has been accelerated to 2.6% in a short span of time. Therefore, the rate hike will be slow from now. Also, the RBA conducts monetary policy each month, therefore, it has sufficient chances to push the rates in line with global peers.

On the NZ front, kiwi bulls have picked demand after the release of higher-than-projected inflation data. The annual Consumer Price Index (CPI) landed extremely higher at 7.2% vs. the expectations of 6.6% but marginally lower than the prior release of 7.3%. While the quarterly inflation figure surpassed the projections of 1.6% and the former print of 1.7% to 2.2%.

Mounting inflationary pressures in the kiwi zone and less-hawkish policy adaptation by the RBA may lead to a significant widening in Reserve Bank of New Zealand (RBNZ)-RBA policy divergence. This has kept the cross on the tenterhooks.

This week, Thursday’s Australian employment data will be of utmost importance. As per the projections, the Employment Change for September will decline to 25k vs. the prior release of 33.5k. Australia’s tight labor market has left less room for growth in employment opportunities. While the Unemployment Rate will remain steady at 3.5%.