It was mixed week for the Aussie Dollar, which didn’t perform quite as poorly as a simple focus on the AUD/USD exchange rate might suggest. The pair opened on Monday around 0.7770 and traded essentially sideways in a relatively tight range until the close of business on Wednesday. On Thursday, it initially sold off to just below 0.7750 on a softer than expected labour market report but a surge in commodity prices then lifted it back on to 78 US cents for the first time in 6-days. By the end of the session in New York, however, it had suffered what technical analysts refer to as a “key day reversal” with a higher high, lower low and lower close than the previous day. Friday confirmed this reversal with a fall all the way to 0.7660. Despite this drop, the AUD ended the week up against the GBP and NZD, though down against the EUR and Canadian Dollar.
The RBA Board Minutes offered no great surprises. Certainly, there was no sense of urgency in changing monetary policy. “Forward-looking indicators suggested that spare capacity in the labour market would continue to decline gradually over 2018. Consequently, wages growth was expected to rise gradually from its current low rate. Low growth in labour costs in combination with strong competition in the retail sector suggested that inflation would remain low for some time before also picking up gradually as the economy and labour market strengthen.” The RBA noted, The RBA noted that, “The low level of interest rates had supported growth over 2017, which had reduced the unemployment rate and brought inflation closer to the target. Further progress on these goals was expected in the period ahead, but this progress was likely to be gradual. Over 2018, GDP growth was expected to exceed potential growth and CPI inflation was expected to increase gradually to be a little above 2 per cent. Members noted that an appreciation of the Australian dollar would be expected to result in a slower pick-up in economic activity and inflation than forecast.” Indeed, a full reading of the whole concluding section revealed the use of the word ‘gradual’ five times in just two paragraphs!
The March labour market report was quite a bit softer than had been expected. Total employment rose by just 4,900 against consensus expectations of a 21,000 increase. More disappointingly, February’s initially-reported 17,500 gain was revised to show a drop of 6,300 which brought to an end what had previously been a run of 17 consecutive monthly increases in employment. The main revisions came in full-time jobs which were now estimated to have gained only 20,100 in February, instead of the initial outsized jump of 64,900. March was even worse with full-time positions falling 19,900. The unemployment rate was steady at 5.5 percent, after a downward revision to February. It has hovered between 5.4 percent and 5.6 percent for 11 months now. On the Australian stock exchange, the ASX Metals & Mining index hit a three-month high last week, driven by sharply higher prices for industrial metals. Australia’s biggest export commodity, iron ore, was up 8.5% in just three days. Whether metals prices can sustain these gains in the face of a stronger USD remains to be seen. The AUD ended last week at USD0.7665, with AUD/NZD at 1.0640 and GBP/AUD1.8250.