The Australian dollar finished January with a thud

Photo by Scott Barbour/Getty Images

The Australian dollar finished January with a thud, giving back ground following the release of another soft Australian inflation report, this time for the December quarter.

Here’s the scoreboard as at 8am AEDT.

AUD/USD 0.8057 , -0.0025 , -0.31%
AUD/JPY 87.93 , 0.03 , 0.03%
AUD/CNH 5.0734 , -0.0419 , -0.82%
AUD/EUR 0.6488 , -0.0028 , -0.43%
AUD/GBP 0.5674 , -0.0038 , -0.67%
AUD/NZD 1.0929 , -0.0092 , -0.83%
AUD/CAD 0.9904 , -0.0068 , -0.68%

After rising back above the 81 cent level earlier in the session, the AUD/USD came under selling pressure on news that Australian inflationary pressures remained soft in the December quarter of last year, thwarting any near-term expectations that the Reserve Bank of Australia (RBA) will begin to lift interest rates in the months ahead.

However, after dipping to as low as .8045, the AUD/USD then staged a rally into the European open on the back of another bout of US dollar weakness, briefly hitting a high of .8116 before moving lower in the latter parts of the session.

As David de Garis, Economist at the National Australia Bank (NAB) explains, the late reversal followed the release of strong US economic data during the session.

“ADP Employment came in on the strong side of expectations for January, printing at 234,000 ahead of tomorrow night’s payrolls,” he said.

“The Q4 Employment Cost Index revealed only the very mildest acceleration in employment costs through last year, rising 2.6% year-on-year, up from 2.2% through 2016, buying time for the Fed with its gradual removal of monetary accommodation.

“The Chicago PMI came in at 65.7 ahead of tonight’s national ISM.”

The Aussie was also weighed down by the US Fed’s January interest rate decision with the US dollar and bond yields pushing higher in the immediate aftermath of its release.

“The main point to note was the Fed’s description of the inflation outlook,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.

“The FOMC noted that ‘inflation on a 12 month basis is expected to move up this year and to stabilise around the Committee’s 2% objective over the medium term’. Previously the FOMC had said ‘inflation was to remain somewhat below 2.0% in the near term’.

“Hence, the FOMC appear a little more confident that inflation will lift this year.”

That saw the AUD/USD fall to session lows of .8036 before recovering in recent trade.

It currently trades at .8057, down 0.31% for the session. For the month, the AUD/USD is on track to record a gain of around 3.3%.

AUD/USD Hourly Chart

Turning to the day ahead, there’s plenty of data releases scheduled both domestically and abroad.

In Australia, markets will receive the Ai Group’s manufacturing PMI report for January at 9.30am AEDT. That will be followed 30 minutes later by CoreLogic’s monthly house price index, also for January.

Neither are likely to move the Aussie.

At 11.30am AEDT, the ABS will also release Australia’s December building approvals report with a decline of 7.6% expected. Although not a noted market-mover, if there has been a trend in approvals recently, it’s been for the data to come in ahead of expectations.

Outside of Australia, a raft of manufacturing PMI reports will be released around the world, including from China, Japan, Europe, the UK and US.

The US PMI figure, in particular, will be influential on markets in the second half of the session.

While the PMI deluge will dominate proceedings, markets will also receive data on labour coats, construction spending and initial jobless claims from the United States along with the Nationwide House Price survey from the UK.

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