Australian dollar trades above US$0.68
Daily Currency Update
The Australian dollar is stronger this morning when valued against the US dollar. On Friday, the Australian dollar rallied against the US dollar after releasing crucial economic data in the United States, which failed to underpin the USD. Additionally, a services PMI survey dropped to contractionary territory, fueling speculation for a recession in the US. Other contributing factors to the volatility were primarily external, with Chinese policies, Federal Reserve meeting minutes and US jobs data all playing a role. China’s effort to extricate itself from the economically strangling zero-case COVID-19 policy seems to be presenting several challenges. While the official data depicts a situation under control, the anecdotal evidence from hospitals and morgues suggests a more problematic transition. Another policy tilt from Beijing could see an easing of restrictions for some Australian exports, such as coal, as the relationship between the two countries might be thawing. At the time of writing, the AUD/USD is trading at US$0.6874.In the week ahead, further machinations around US monetary policy could see more wild swings in AUD/USD. On the data front, this week, we will see the release of Building Permits, the release of the Monthly Consumer Price Index (CPI), Retail Sales and Trade Balance. On the US front, its calendar will feature the Consumer Price Index (CPI), unemployment claims, and the University of Michigan (UoM) Consumer Sentiment.
Key Movers
Friday’s US session delivered the first US jobs report for the year, causing the US dollar to weaken and a sharp pullback for US bond yields. Adding 223,000 jobs for December (versus 200K expected) and the unemployment rate falling to a new cycle low at 3.5% was another solid US jobs report – the labour market continues to defy the Fed’s aggressive tightening. The major talking point from the data was the average hourly earnings reading, December’s MoM rate printing at 0.3% versus an expected 0.4%. This accompanied major downward revisions to headline jobs growth and wages, delivering a goldilocks report. Slowing wages growth feeds into the hope that the Fed will further slow the rate hikes, perhaps hoping for a 25 basis points hike (to a target rate of 4.50% - 4.75%) at its 01 February meeting. Current market pricing assigns a 75/25 split between a 25 basis points/50 basis points hike. US equities logged their best day since November on hopes that the Fed can engineer a fabled soft landing – the Nasdaq climbing close to 3%, whilst the S&P 500 added 2.28%.The pound extended its gains against the US dollar, surging more than 160 pips on Friday, following a disappointing ISM Services report and an earlier jobs report. The GBP/USD is trading at US$1.2077. UK’s next week’s calendar will feature Retail Sales, Gross Domestic Product, and the Trade Balance. On the US front, its calendar will feature the Consumer Price Index (CPI), unemployment claims, and the University of Michigan (UoM) Consumer Sentiment.
Expected Ranges
- AUD/USD: 0.6800 - 0.7000 ▲
- AUD/EUR: 0.6350 - 0.6550 ▲
- GBP/AUD: 1.7400 - 1.7600 ▼
- AUD/NZD: 1.0700 - 1.0900 ▲
- AUD/CAD: 0.9100 - 0.9300 ▲