Home Daily Commentaries Markets now turn to tonight’s US Unemployment Claims

Markets now turn to tonight’s US Unemployment Claims

Daily Currency Update

In what was a quiet night for markets overnight, the AUD slipped against the USD from 0.7540 to briefly touch lows of 0.7498 before rebounding into this mornings open where the local currency is currently buying 0.7511 US cents. The move lower overnight was largely driven by an uptick in US treasuries which were supported by a stronger than expected manufacturing Survey out of the Philadelphia fed. With markets currently pricing a 100% chance of a US FED hike in June, we expect the pair to come under continued pressure as the yield differentials along the curve continue to move in favour of the worlds base currency.

The Aussie put in a much firmer performance against the major crosses opening higher against all major crosses bar the pound which is finding support on reports of positive developments in Brexit negotiations. This is indicative of markets seemingly overlooking yesterdays mixed AU employment report which saw unemployment edging higher to 5.6% from 5.5% with the headline number coming in at 22.6K (vs 20K expected).

With today’s calendar being particularly low key with no key releases that will be of interest to markets, we expect the AUD to largely trade sideways against the majors with any moves to continue to be highly sensitive to deviations in yield differentials.

Key Movers

The New Zealand Dollar has edged lower on Thursday against the Greenback following strong US bond yields and positive US economic data overnight. 10-year yields continued to track upwards reaching a high of 3.12% intraday yesterday and the Philadelphia Fed manufacturing index came in well above expectations as the new orders component reached a 45-year high while the prices received component reached a 29-year high. All well supportive to the US dollar and are consistent with the Empire State release earlier this week, suggesting healthy May manufacturing activity. The NZD/USD reached a high of 0.6937 following the release of the NZ Budget which revealed the NZ government boosted spending and forecasts debt reduction. However this was short-lived and the pair has consolidated below the 69c handle.

The calendar is light locally, markets will now turn towards tonight’s US Unemployment Claims which is an important signal of the overall economic health with consumer spending highly correlated with labour market conditions.

On the technical front, support is seen at 0.6850 followed by 0.6800 and resistance up at 0.6900, markets still remain pretty bearish on the pair.

The Great British Pound rallied overnight on the back of local news indicating that the UK was preparing to remain in the customs union post-Brexit, sending the GBP/USD pair up to 1.3568, 24-hour high. Looking ahead today and there are no macroeconomic data releases scheduled.

From a technical perspective, the GBP/USD pair is currently trading at 1.3515. The pair continues to trade inside a limited range. We continue to expect support to hold on moves approaching 1.3580 while now any upward push will likely meet resistance around 1.3520.

The USD reached a new 5 month high versus its pairs, rising 0.2% in yesterday’s session. The dollar started the session slightly weaker, but the Philadelphia Fed Business Outlook for May came much stronger than expected (34.4 versus 21 expected and versus 23.2 last month). The strong number pushed US Yields higher again, with the US 10 YR Treasury reaching 3.115% (highest level since 2011) helping the USD recover for the session.

It now seems like US yields are putting some pressure on the stock market, which ended the session slightly lower, also thanks to Trump wariness about the outcome of US-China trade talks.

Digging into the details of the Philly Fed number, new orders doubled and prices received rose to the highest levels since 1989, suggesting firms are starting to pass through higher costs, which might put more pressure on inflation and thus, on the possibility of more rate hikes by the FED.

The Euro managed to close almost flat around 1.18, trading in a tight range between 1.1830 and 1.1780. It seems that the Italian Government drama continues but without any clarity on who is going to be Italy’s prime minister, the impact on the Euro was limited. League leader Matteo Salvini said Monday is the “make or break” day for the deal between the League and the other populist party, Five Star.

From a technical perspective, there seems to be good support around 1.1750 for the EURUSD while 1.19 on the upside should bring selling interest, acting as next resistance.

The loonie was still lingering around 1.28 during yesterday session, closing 0.1% weaker versus the USD.

The CAD was down almost 0.3% after the USDCAD climbed to 1.2822, but it recovered to close just above 1.28, probably supported by president Justin Trudeau cautiously optimistic comments around NAFTA. Unfortunately for the CAD, recent comments by US Trade Representative Robert Lighthizer suggest NAFTA countries are ‘nowhere near close to a deal’, putting more pressure on the loonie, the USDCAD is opening today’s session weaker and slightly above yesterday’s high of 1.2822.

Support for the CAD should be found around 1.1750, but if US Yields keep pushing higher and we don’t get any positive Headlines from NAFTA negotiations, it would be more probable to see the USDCAD testing resistance at 1.2850.

Expected Ranges

  • AUD/NZD: 1.0830 - 1.0980 ▲
  • GBP/AUD: 1.7880 - 1.8140 ▲
  • AUD/USD: 0.7430 - 0.7570 ▼
  • AUD/EUR: 0.6230 - 0.6400 ▼
  • AUD/CAD: 0.9580 - 0.9680 ▼