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AUD extends downturn ahead of US labour market report

Friday 2 July, 2021

Daily Currency Update

AUD - Australian DollarThe Australian dollar edged further below 0.75 US cents on Thursday, amid a broadly stronger USD. While investor focus remains affixed to tonight’s non-farm payroll data, a robust ISM manufacturing report helped bolster demand for the USD and drive an uptick across US 10-year treasury yields. Renewed demand for the USD this week has forced the AUD to mark new year-to-date lows, slipping off intraday highs at 0.7505 to touch 0.7461. Having fallen through the post FOMC low, the AUD is now vulnerable to a deeper near-term correction. A break below 0.74 could trigger a run toward supports at 0.7290/0.730 and 0.72 US cents. We still believe the AUD is undervalued at these levels when marked back to historical drivers and would expect the currency to recover as we move through Q3 and into Q4. However, there are significant headwinds now clouding this outlook. Sustained inflationary pressure, ongoing and escalating China trade tensions and the impacts caused by the Delta variant could extend the current bearish outlook and force a correction in medium term forecasts.

Key Movers

The US dollar strengthened through trade on Thursday, as leading domestic indicators suggest today’s non-farm payroll print will show strong growth across the labour market, as the US economy continues to reopen. The ISM manufacturing survey showed the manufacturing sector has maintained recent momentum, printing near record highs. While there remains intense pressure on input and component prices, signals that supply constraints are starting to ease helped fuel expectations inflation concerns could well be transitory. With jobless claims falling to a pandemic low, there is an expectation a faster than anticipated labour market recovery will force the Fed to bring forward its timeline of monetary policy adjustment. The Blomberg index advanced 0.3% and the USD now sits near the highs, enjoyed in the wake of the FOMC policy update in mid-June. The euro was able to stave off a significant sell, off edging only marginally lower on the day, yet still marked new 3-month lows below 1.1850, while the yen slipped to its lowest level since march and the GBP failed to hold above 1.38. The pound came under pressure following comments from Bank of England Governor Bailey. Bailey reiterated statements issued after the last BoE policy meeting reminding investors it is crucial the Bank does not undermine the recovery by tightening monetary policy too quickly. The comments dampened expectations the UK and BoE could move ahead of schedule, as inflation pressures grow and the recovery outpaces expectations. Having touched lows at 1.3750, sterling now buys 1.3762 as attentions turn to tonight’s US non-farm payroll print.

Expected Ranges

  • AUD/USD: 0.7390 - 0.7580 ▼
  • AUD/EUR: 0.6260 - 0.6330 ▼
  • GBP/AUD: 1.8270 - 1.8550 ▼
  • AUD/NZD: 1.0690 - 1.0760 ▼
  • AUD/CAD: 0.9250 - 0.9350 ▼