AUD steady ahead of key US labour market print
Friday 5 August, 2022
Daily Currency UpdateThe Australian dollar maintained a relatively narrow trading range throughout Thursday, unable to extend back above 0.70 US cents despite a US dollar downturn. With little headline data or newsflow on hand to drive direction investors appeared content in managing positions ahead of tonight's all-important US non-farm payroll print and labour market review. Having touched intraday lows at 0.6935 the AUD climbed toward 0.6990, ignoring reports China’s military exercises in response to House Speaker Pelosi’s visit to Taiwan encroached into Taiwanese territories. Markets seem content with the belief tensions will not escalate further. An uptick in US jobless claims added some pressure on the US dollar as signs the labour market is softening are beginning to emerge. With little on the domestic ticket to drive direction, our attentions sit on US non-farm payroll data for direction into the weekly close. With US GDP faltering through the last 2 quarters a downturn in labour market strength will act as a clear signal the world’s largest economy is headed for recession.
Key MoversPrice action across major currencies was largely muted through trade on Thursday with investors content in sidelining major bets until after tonight’s US non-farm payroll print. Inexplicably the Dollar index gave up half a percent and the Euro jumped back through 1.02 to touch 1.025 while commodity currencies enjoyed a boost. An uptick in US jobless claims appeared to elevate fears the US labour market is weakening. Having suffered a contraction in GDP through the first half of the year labour market strength is pivotal in keeping the US from slipping into recession. We expect a slowdown yet the healthy pace of job creation at or around 250,000 and a largely steady unemployment print while rising inflationary pressures will make earning data all the more important. A softer than anticipated labour market portrait could dampen expectations for aggressive Fed policy, prompting a broader US dollar correction.
In other news the Bank of England (BoE) elected to raise rates by 50 basis points and as is the recent trend the pound fell sharply in the moments following the announcement. Policymakers highlighted immediate concern for inflation as the justification behind the rate hike and proffered a pretty grim forecast for the UK economy. The BoE expects inflation will soar beyond 13% before the end of the year, plunging the economy into a deep recession as GDP contracts by more than 2%. They anticipate inflation will remain above 10% through much of 2023 before correcting back toward normal levels in 2024. These forecasts spooked investors and forced the GBP below 1.21, before clawing its way back higher amid rising expectations for another 50-point hike in September. We see good GBP buying opportunities ahead as the bleak inflationary and growth outlook will weigh on monetary policy projections and the pound.
- AUD/USD: 0.6880 - 0.7050 ▲
- AUD/EUR: 0.6780 - 0.6880 ▼
- GBP/AUD: 1.7280 - 1.7520 ▼
- AUD/NZD: 1.1020 - 1.1120 ▼
- AUD/CAD: 0.8920 - 0.9020 ▲