Home Daily Commentaries AUD unable to hold labour market gains as USD retracement continues

AUD unable to hold labour market gains as USD retracement continues

Daily Currency Update

The Australian dollar opens this morning in much the same position as it opened on Thursday, unable to hold onto gains won following a stronger than anticipated labour market update. Domestic employment growth surged in June with 32,600 new jobs added to the economy, significantly more than consensus estimates and a sure sign labour market conditions are impervious to the RBA’s program of monetary policy tightening (for now). With the unemployment rate falling below 3.5% prior to rounding, there is ample scope for the RBA to continue pushing additional rate adjustments in a bid to quash stubbornly sticky inflation pressures. Fears additional rate hikes would derail labour market resilience have dissipated and we now expect the RBA will lift rates in August and again in either September or October. The AUD punched above US$0.68 immediately following the data release, touching intraday highs at US$0.6840 before meeting resistance. The AUD then tracked sideways through the middle part of the trading day, before giving up gains on the heels of stronger US labour market data and a risk off shift. Having slid back below US$0.68 the AUD opens this morning buying US$0.6780.

Our attentions turn now to Japan CPI data. We expect both headline and core inflation will print comfortably above the BoJ’s target range, ramping up pressures on policy markers to move away from yield curve controls. There is no other headline data on the docket.

Key Movers

The USD was broadly stronger through trade on Thursday, continuing the retracement of last weeks oversold move following stronger than anticipated labour market data. US jobless claims printed lower than anticipated, falling to the lowest level in two months, lifting expectations for another robust non-farm payroll print and affording the Fed and FOMC license to continue lifting interest rates without fear of derailing labour market resilience. The USD DXY index jumped half a percent as the dollar forced the euro back below 1.1150 and sterling below 1.29, while pushing back above 140 against the yen.

Outside USD gains, the other major move on the day came from the CNY as the PBOC set the largest premium into the reference rate since November, ramping up its campaign to defend the flattened currency. With additional prudential measures employed to support the yuan, the USD has slipped back below 7.18 from 7.23.

Our attentions turn now to Japan CPI data as the only major item on the macro docket leading into the weekly close. We expect core inflation will print at or near 4.2%. Another strong read above the BoJ’s target will increase pressure on policy makers to move away from yield curve control policy when they meet next week.

Expected Ranges

  • AUD/USD: 0.6730 - 0.6850 ▲
  • AUD/EUR: 0.6020 - 0.6120 ▲
  • GBP/AUD: 1.8700 - 1.9150 ▼
  • AUD/NZD: 1.0780 - 1.0920 ▲
  • AUD/CAD: 0.8880 - 0.8980 ▲