AUD steady in face of stronger U.S wage growth
Monday 4 June, 2018
Daily Currency UpdateDespite an uptick in US labour market performance on Friday the Australian dollar remained flat into the weekly close and opens this morning firmly entrenched amid recent ranges. With a lack of domestic drivers steering direction investors attentions turned to U.S markers for reaction Friday. Markets largely set aside a dip in unemployment and a wage growth print that surpassed expectations offering little reaction to what was a distinctly strong read across the board.
Having maintained a narrow trading band through the last 3 weeks the AUD appears poised for a break, although upside momentum remains hamstrung on approaches too 0.7590/0.76. Risk demand remains of focus short term as Trade concerns and political uncertainty hang over broader markets and dampen demand for emerging market and commodity driven assets.
Attentions this week turns to a crowded macroeconomic docket and global trade developments. Markets will be keenly attuned to commentary from President Trump as he addresses the G7 summit with clues regarding protectionist trade policy dominating risk demand.
Retail Sales will drive domestic direction, while Tuesday’s RBA rate announcement, Wednesday’s GDP print and Thursday’s trade balance report ensure there is a raft of drivers to watch through the week ahead.
Key MoversThe New Zealand Dollar slipped below its previous 0.7 level to open this morning at 0.6984. Spurred downwards by positive employment figures out of the US, the Kiwi was the unfortunate recipient of a resurgent Greenback which rose against most currencies.
The Impetus for the drop was a better than expected non-farm payroll report which had a few positive headlines. Both the jobs created and the unemployment rate beat expectations, leading to a strengthening of the USD. Across the Atlantic, the situation in Italy seems to have a resolution in sight, calming markets for the time being and allowing risk appetites to remain healthy and supporting the NZD. Closer to home, the Aussie cross rate remains relatively resilient with little movement either way. Australia now looks to the retail sales reading today and an RBA statement tomorrow, potentially signalling interest rate intent and is of keen interest to Australian traders.
Looking forward, domestically, the economic calendar remains bare with little to note. The market now turns to the developing headlines as an emboldened Trump looks to impose tariffs on key allies. The trade tensions have shaken markets in the western hemisphere and remains the focus of the week.
The Great British Pound is stronger this morning when valued against its US counterpart. The Sterling reached a high on Friday of 1.3361 on the back of upbeat UK May Markit manufacturing PMI as it came in at 54.4 from 53.9 in April. The index showed that manufacturing picked up speed for the first time in six months.
Looking ahead this week and it all kicks off today with the release of the May Construction PMI, expected at 49.7 from the previous 52.5. Then on Tuesday we will see the release of BRC Retail Sales and Services PMI. From a technical perspective, the GBP/USD pair is currently trading at 1.3341. We continue to expect support to hold on moves approaching 1.3295 while now any upward push will likely meet resistance around 1.3365.
The US dollar enjoyed mixed fortunes through trade on Friday, rallying against the Japanese Yen while failing to extend gains to key commodity trading partners and the Euro. Non -Farm Payroll numbers rallied, while the unemployment rate fell from 3.9% to 3.8% and wages grew at a faster pace than expected in May. The strong print supports the broader gains across the wider economy and could lend itself to an increased hawkish bias when the Fed meets later this month. When coupled with last weeks uptick in PCE inflation indicators there is scope to suggest a 3rd H2 rate hike is becoming increasing likely.
While the steam has runout of the US dollar through the last few weeks broader political risks across Europe and the expected improvements in yield advantage should continue to fuel support for the worlds base currency. Attentions turn key services data Tuesday as the headline macroeconomic indicator while President Trump addresses attendees of the G7 summit and proffers greater insight into upcoming trade policy and the implementation of tariffs on key U.S exports.
EURUSD closed Friday session down 0.3%, around 1.1658 amid political concerns in Spain and Italy plus broad USD strength.
The currency pair is opening Monday Asian session slightly better but uncertainty surrounding Italian situation will still be influencing short-term moves. Snap elections have been avoided thanks to the confirmation of the 5S-League coalition government, but the market will probably remain concerned given the fiscal risks and tension this coalition brings into the EU.
On the other side, a robust May US employment report was released on Friday, supporting further USD strength and a pickup in Treasury yields. The EURUSD traded within a 1.1617-1.1718 range and the next levels to watch for the start of the week are 1.1608 (support) and 1.1728 (resistance).
The loonie ended the session flat versus the USD at 1.2960 even as the USD strengthened, trade disputes continued and WTI crude lost 2%.
The CAD lost more than 0.25% after the US employment reports as USDCAD climbed all the way to 1.3008 but it managed to recover and close below 1.2970. Uncertainty around NAFTA negotiations and the recent negative performance of Crude will continue to put downward pressure on the loonie. Trump is now talking about the possibility of pursuing separate NAFTA deals with Canada and Mexico, so we should expect more short-term volatility.
From a technical perspective, support for the USDCAD sits around 1.2915/20 while 1.3022 should act as resistance.
- AUD/NZD: 1.0730 - 1.0890 ▲
- GBP/AUD: 1.7380 - 1.7730 ▲
- AUD/USD: 0.7450 - 0.7630 ▲
- AUD/EUR: 0.6430 - 0.6580 ▲
- AUD/CAD: 0.9650 - 0.9850 ▲