- The Australian dollar endured a wild session on Wednesday, rising, before tumbling, before recovering once again.
- The US Federal Reserve hiked interest rates and signalled a growing confidence in the US economy. However, that was offset by renewed concerns over trade frictions between the US and China.
- Australian jobs data for May will be released today. The ECB will also announce its June monetary policy decision. There’s also a raft of other important data released in the US, China and Europe.
The Australian dollar endured a wild session on Wednesday, rising, before tumbling, before recovering once again.
Here’s the scoreboard as at 7am in Sydney.
AUD/USD 0.7579 , 0.0008 , 0.11%
AUD/JPY 83.61 , 0.06 , 0.07%
AUD/CNH 4.8411 , -0.0077 , -0.16%
AUD/EUR 0.6426 , -0.0019 , -0.29%
AUD/GBP 0.5665 , 0.0004 , 0.07%
AUD/NZD 1.0790 , -0.0012 , -0.11%
AUD/CAD 0.983 , -0.0022 , -0.22%
While the scoreboard indicates that it was a quiet session for the Aussie, finishing mixed against the major crosses, the 5-minute AUD/USD chart below provides a better indication on the gyrations seen in the second half of trade.
The sharp plunge late in the day was the US Federal Reserve’s June interest rate decision, something that saw the US dollar and bond yield lift sharply in response.
“The US Federal Reserve hiked interest rates 25 basis points… taking the Fed funds target range to 1.75%-2.0%,” said Ray Attrill Head of FX Strategy at the National Australia Bank.
“The FOMC also upped its rate hike profile via its ‘dot’ projections which now foresees four hikes in total in 2018, an unchanged three further hikes in 2019 and one in 2020.”
The Fed also upped its forecasts for core PCE inflation and GDP growth this year, and lowered its expectations for unmployment.
“It’s a hawkish hike — no two ways about it,” said Greg McKenna, Chief Market Strategist at AxiTrader.
However, just as it looked like the US dollar and bond yields would continue to screech higher, those moves suddenly reversed, helping the AUD/USD to recover.
As for the factor behind the US dollar’s reversal, take your pick.
Some pointed to an article from the Wall Street Journal that said the US government will introduce tariffs on up to $US50 billion in Chinese imports from Friday.
“Not that this is really ‘new news’ but it had the effect of reversing all of the roughly 0.5% gain in the US dollar, seen US Treasury yields pare about half of their immediate post-FOMC gains and pulled the S&P 500 down further into negative territory,” Attrill at the NAB said.
Others suggested that the tone from US Fed Chair Jerome Powell in his post-meeting press conference wasn’t as hawkish as the upgrades made in the Fed’s economic and interest rate projections.
Given the price action in the euro, one suspects that pre-positioning ahead of the European Central Bank’s (ECB) monetary policy decision may have been another factor behind the dollar’s reversal.
Regardless of the reason, be it one factor or several, it ensured the AUD/USD closed the session close to flat.
Turning to the day ahead, it looks set to be another whippy session for Aussie with several key data releases scheduled both at home and abroad.
Locally, Australian jobs data for May will be released at 11.30am AEST.
A modest increase in employment is expected leaving the unemployment rate steady at 5.6%. Markets will also receive quarterly readings on underemployment and underutilisation, deemed by some as highly-influential on the outlook for wage pressures.
This 10-second guide has more on what to expect.
Following the Australian jobs report, China will release data on industrial output, retail sales and urban fixed asset investment for May at midday AEST.
Later in the session, data highlights include inflation figures from Germany and France, UK retail sales along with trade prices, jobless claims and retail sales figures from the United States.
While all big data releases in isolation, they’re all likely to play second-fiddle to the ECB’s monetary policy decision at 9.45pm AEST.
“Various officials have indicated that this meeting should feature a discussion on the Asset Purchase Program (APP) and which we expect will lay the foundations for a taper after September taper and December expiry, but will likely fall short of an official commitment,” says Attrill at the NAB.
“There will be a likely upgrade to the staff’s inflation forecasts after the April readings came in well above prior ECB projections.
“Even without a firm commitment to end QE by year end, this should still be seen as a significant development, implying the ECB policy cycle is turning.
“If so, it should at least underpin the recovery in all things EUR if not providing a strong catalyst for further near term gains.”
It’s going to be a busy session ahead.