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Aussie buoyed as data sets point to soft US employment print

AUD - Australian Dollar

The Australian dollar outperformed on Thursday pushing back toward 0.6755 as risk appetite improved and US business conditions seemingly deteriorated. Having tested supports in the wake of the RBA’s rate cut on Tuesday the AUD found support as investors looked to adjust short positions and take advantage of buying opportunities near decade lows.

Despite the upturn and adjustment in US rate expectations following softer than expected US ISM non-manufacturing print the AUD remains largely range bound, caught between support at 0.6670/0.6680 and resistance at 0.6790/0.68. Our attentions now turn to the RBA’s Financial Stability Review and US non-farm payroll numbers as markers and possible catalysts to prompt a break. A string of weaker than anticipated US data sets and mounting tariff pressures have heightened calls the US economy is headed toward recession, amplifying rate cut rhetoric. A soft print could force the Fed to consider another rate cut before the end of the year and help catapult the AUD back above 0.68, while a strong read all but sinks expectations for immediate easing in monetary policy conditions and forces the AUD back toward recent lows.

Key Movers

The US dollar fell against most major counterparts through trade on Thursday as services data missed broader estimates. The soft read compounded weakness in manufacturing data on Wednesday and pointed too a broader slowdown in the labour market ahead of tonight’s non-farm payroll print. Average estimates have the US economy adding 145,000 new employment opportunities in September, however recent weakness across ISM surveys opens the door to increased downside risk. A miss could prompt the Fed to review its wait and see approach and force another cut before the end of the year. Current estimates have priced in at least another 25 basis point cut in October or December.

The Great British Pound jumped through trade on Thursday, advancing 0.5% to touch 1.2415. Sterling found support in a softer USD and a slight reduction in the probability the UK will leave the EU without a deal in Place. As we draw closer to the October 31 deadline Johnson may be forced to accept a compromise on the Irish backstop proposal if he is to breakdown the frosty reception, he has encountered from EU leaders. We expect Sterling will remain range bound leading through October fluctuating in response to Brexit headlines.

Expected Ranges

AUD/USD: 0.6680 - 0.6790 ▲

AUD/EUR: 0.6050 - 0.6190 ▲

GBP/AUD: 1.8070 - 1.8430 ▼

AUD/NZD: 1.0675 - 1.0730 ▼

AUD/CAD: 0.8930 - 0.9030 ▲