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Decline in unemployment not enough to stave off AUD sell off

By OFX

The Australian dollar retreated through trade on Thursday, coming off highs at 0.7164 to sink back below 0.71 as investors adjusted positions, ameliorating their reactions to the Fed’s latest policy announcement. The AUD found renewed upside support through the domestic session after a surprise decline in the unemployment rate, the first print below 5% in nearly 8 years. However, a decline in the pace of employment growth and reduction in the participation rate somewhat tempered AUD upside moving through the afternoon.

Labour market performance remains a key marker governing AUD direction through the 2nd quarter as the monetary policy implications of a softening could be significant. GDP data released earlier this month showed the economy had slowed significantly, entering a per capita recession for the first time since 2006, highlighting a gap between RBA optimism and market indicators. Should labour market performance begin to turn and the RBA will be forced to respond, and the likelihood of a rate cut in July or August increases.

We expect the AUD to maintain recent ranges through Friday, trading between 0.7050 and 0.7150.

The New Zealand dollar closed lower Thursday, edging back below 0.69 as the USD recouped losses suffered in the wake of the Fed’s policy announcement. The NZD rallied throughout domestic trade following the release of 4th quarter GDP data which showed the economy grew at a steady pace through the three months from October. While year on year data missed the mark, the steady quarterly read tempered expectations for an RBNZ rate cut in the near term.

A string of improvements across domestic economic indicators has seen the NZD outperform against a majority of major peers throughout the last 6 weeks as central banks pivot toward a more dovish stance and the RBNZ maintains its neutral setting.

With little of note on the docket today we expect the Kiwi to maintain recent ranges.

The Great British Pound weakened further overnight as the risk of a no-deal Brexit increased. Opening this morning at 1.3131 against the Greenback, the Sterling plunged towards 1.30 before recovering slightly despite stronger than expected retail sales figures. The Pound looks to be on course for a volatile run to the Brexit deadline.

Prime Minister May started the eventful day by pitching her delay plan to the EU. The EU were conciliatory to a point, stipulating that a delay is possible if the UK Parliament ratified the deal. Back at home, the DUP stated “we are no closer to backing a Brexit deal” making the third attempt of the deal passing Parliament unlikely at best and increasing chances of a no-deal Brexit. The market reacted poorly to the news and traded lower as Brexit uncertainty increased.

Moving into Friday the Sterling looks set to enjoy a quiet day on the economic calendar. Focus, as always lately, will be on the Brexit headlines.

The United States Dollar trended upwards against most other major currencies on the back of positive data. The Philadelphia Manufacturing Index came back much higher than expected at 13.7 compared to its forecasted rate of 4.6. Unemployment Change from the Department of Labour also came back lower at 221k, compared to its forecast of 226k and previous figure of 230k. Showing the number of individuals who filed for unemployment insurance for the first time in the past week, a figure less than the forecast is good for the currency.

Tomorrow, Markit will be releasing their Purchasing Managers Index. This is a survey on all purchasing managers in the manufacturing and services industry. They are leading indicators of economic health as businesses react quickly to market conditions. The US Treasury will also release their monthly data of their budget, showing the difference in value between their income and spending the past month. A number greater than the forecast of -228.0B is good for the currency.

The USD opened at 1.4070 against the AUD this morning.

The Euro has been pushed off its perch and has relinquished all gains made in Wednesday’s session, yesterday the EUR/USD rate moved from 1.1437 down to 1.1343. The Eurozone Consumer Confidence Index was recorded for March at -7.2, analysts had expected -7.1, the data had little impact on the pair and the main driver for the fall was upbeat US manufacturing data.

Looking ahead, the Eurozone is to release data on private sector activity.

On the technical front, a break below 1.1350 could lead to 1.1330 support. On the upside, resistance is up at 1.1380.

The Canadian Dollar edged lower on Thursday with the USD/CAD rearing its head near the 1.14 levels. The catalyst behind the move was better than expected US data. The Philadelphia Fed said Thursday its manufacturing index rose to a reading of 13.7 in March, from a prior reading -4.1. That beat economists' estimates for a reading of 4.6.

Locally, employment rose by 36,200 jobs in February from January according to ADP which the Loonie shrugged off. Looking ahead, Canada is to produce figures on retail sales and inflation.

On the technical front support sits at 1.1350, on the upside resistance is at 1.1400.