Home Daily Commentaries AUD buoyed by strong labour market and weakening US economic outlook

AUD buoyed by strong labour market and weakening US economic outlook

Daily Currency Update

The Australian dollar surged upward through trade on Thursday, buoyed by a stronger than anticipated labour market update and a broad improvement in demand for risk. Employment data showed 53,000 new jobs were added to the economy in March, well above the 20,000 anticipated and a clear signal labour market conditions remain extremely tight. With unemployment stable at 3.5%, markets moved to price in future RBA rate hikes dragging the AUD and domestic yields higher. Having flirted with a break above US$0.67 the AUD jumped through this level, climbing steadily overnight against a backdrop of improved Chinese Trade data and renewed risk appetite. Weaker than anticipated US PPI data and climbing US jobless claims played to an emerging narrative that suggests the Fed’s tightening cycle may be nearing its peak. Having crashed through US$0.6750 the AUD marked intraday highs just short of US$0.68 and currently buys US$0.6781.

Our attentions turn now to US retail sales and consumer sentiment data. After a soft February we expect further softening and are keenly attuned to any signal to suggest consumer-led growth is slowing. A soft read could be the catalyst the AUD needs to punch above US$0.68, while a strong print could see the AUD drift back toward the middle of recent ranges.

Key Movers

The US dollar came under increasing pressure through trade on Thursday as weaker than anticipated PPI inflation data and increasing jobless claims played to a narrative of growing US economic weakness and a potential end in the Fed’s monetary policy tightening cycle. Markets are still pricing in a modest chance of a 25 point hike in May, but are now anticipating this will be the last and final rate adjustment within this tightening cycle. With expectations for a pause in Fed policy amplified, the US dollar and US yields have tracked firmly lower with the dollar on track for its fifth consecutive weekly decline. Against this backdrop the euro has traded to 12 month highs pushing through 1.1050, while the GBP has risen to 10 month highs above 1.25. The yen was the day’s under performer unable to capitalise on USD weakness. Improved risk sentiment and the burgeoning gap between Bank of Japan and dollar bloc central bank monetary policy continues to weigh on the yen, prompting a sharp decline against key crosses, namely the AUD and NZD.

Our attentions turn now to US retail sales data and any signs of continuation in the recent narrative of US economic weakness.

Expected Ranges

  • AUD/USD: 0.6680 - 0.6830 ▲
  • AUD/EUR: 0.9080 - 0.9320 ▲
  • GBP/AUD: 1.8280 - 1.8820 ▼
  • AUD/NZD: 1.0680 - 1.0820 ▼
  • AUD/CAD: 0.8980 - 0.9120 ▲