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Demand for risk continues to guide AUD direction as all eyes turn to labour market

AUD - Australian Dollar

The Australian dollar edged back below 0.68 on Friday as investors appetite for risk was sapped by ongoing trade tensions. President Trump fuelled trade uncertainty affirming the US was not in a position to compromise on a trade deal. Having touched 0.6814 the AUD gave up early morning gains closing the week lower.

Short term direction remains heavily reliant on simmering trade tensions and yuan valuations. While the global risk premia is dominated by a risk off undertone upside gains will be hard won. With moves approaching 0.6750 still reasonably well supported we expect the AUD to remain under pressure leading into next months RBA rate announcement. Following Fridays Statement on Monetary Policy we expect the RBA will lower interest rates again in September with a fourth cut announced in November. Our focus this week turns to Thursday labour market data and Tuesday quarterly wage growth print. Sustained wage stagnation and an increase in the unemployment rate and/or decline in jobs growth will affirm this view as the RBA looks to employment performance as a key metric driving decision making.

Watch support at 0.6750 and 0.6670 with resistance on moves approaching 0.6830.

Key Movers

Escalating trade tensions, stagnant global growth and European political concerns weighted on investors demand for risk through trade on Friday, prompting a rally in both the Japanese yen and Swiss franc. The yen touched 7-month highs against the USD as ongoing US-China trade tensions and a slow down in US domestic economic performance forced the worlds base currency lower against a basket of major counterparts. The dollar was hampered by softer than anticipated inflation indicators, while President Trump confirmed the US would not enable business with Chinese Telecom company Huawei, nor was it ready to compromise on a trade deal. The comments fuelled concerns the trade tiff will continue through the foreseeable future further weighing on global growth. The yen opens the week just short of the 7-month highs touched on Friday at 105.52.

The Great British pound slid to a 2 and half year low against the dollar on Friday as second Quarter growth data showed the economy had shrunk for the first time since 2012. Falling through 1.21 and 1.2050 sterling touched 1.2028. While year on year growth remains above 1% Friday’s data print has alarmed investors already bracing for a no deal Brexit. As the risk premium continues to rise with ongoing Brexit uncertainty there is real scope to suggest the pound will make a push below 1.20 in the coming days.

Expected Ranges

AUD/USD: 0.6670 - 0.6830 ▼

AUD/EUR: 0.5980 - 0.6120 ▼

GBP/AUD: 1.7650 - 1.8020 ▼

AUD/NZD: 1.0450 - 1.0550 ▲

AUD/CAD: 0.8900 - 0.9050 ▼