The Australian dollar has been hammered back below 78 cents

Simples. Picture: Marvel

The Australian dollar has fallen back below the 78 cent level, hammered lower on Thursday by renewed US dollar strength and a terrible Australian retail sales report for August.

Here’s the scoreboard as at 7.20am AEDT.

AUD/USD 0.7792 , -0.0071 , -0.90%
AUD/JPY 87.93 , -0.71 , -0.80%
AUD/CNH 5.1853 , -0.0418 , -0.80%
AUD/EUR 0.6657 , -0.0027 , -0.40%
AUD/GBP 0.5941 , 0.0007 , 0.12%
AUD/NZD 1.0948 , -0.0017 , -0.16%
AUD/CAD 0.9794 , -0.0016 , -0.16%

After tumbling in Asia following news that Australian retail sales fell by 0.6% in August, the largest decline in over four years, the AUD/USD continued to slide in European and US trade, undermined by a resurgent US dollar.

More solid US economic data, along with optimistic views expressed by several US Fed officials, saw the US dollar index rise to the highest level in seven weeks, extending its bounce from early September to 3.2%.

US factory orders rose by 1.2% in August, higher than the 1% increase expected, while core capital goods orders rose by 1.1%, higher than initial estimates of 0.9%. The core orders figure excludes spending on military and aircraft, and is therefore linked to business investment.

Initial jobless claims data also topped forecasts, providing further evidence that the economic impact of recent hurricane damage will likely be short-lived.

Along with solid economic data, the US dollar was also provided fuel by a raft of hawkish Fed speak seen during the session.

“Philadelphia Fed president Harker commented that a December rate hike is ‘pencilled in’,” said Joseph Capurso, senior currency strategist at the Commonwealth Bank.

He added, “San Francisco Fed president Williams said moderate growth and higher inflation will allow the FOMC to tighten.”

As a result, the US dollar index rose by over half a percent, seeing the AUD/USD slide back below the 78 cent level.

AUD/USD 30-Minute Chart

The Aussie also lost ground against all major crosses aside from the British pound as ongoing political uncertainty cast doubt as to whether the Bank of England will be able to lift interest rates this year.

Turning to the session ahead, the day will be about one thing and one thing only: the release of the US non-farm payrolls report for September at 11.30pm AEST.

“We expect non farm payrolls to increase by only 50,000 because of the hurricanes while we expect average hourly wage growth to remain muted,” says Capurso. This will weigh on US interest rate futures and curtail some of the recent gains in the USD.”

Markets will also be watching the average hourly earnings figure given its implications for domestic inflationary pressures.

“We expect growth in average hourly earnings of 0.3% month-on-month and 2.6% year-on-year, but see risks of a 0.4% print from a possible hurricane boost,” said Andrew Labelle and Andrew Hollenhorst, economists at Citibank.

Markets are looking for an increase in earnings of 0.3%, leaving the increase on a year earlier at 2.5%. Payrolls are tipped to grow by 80,000, leaving the unemployment rate steady at 4.4%.

Outside of the payrolls report, markets will also receive US consumer credit, Canadian unemployment, UK Halifax house price survey and German industrial orders.

On the central bank front, US Fed members Dudley, George, Bostic, Kaplan, Rosengren and Bullard are all scheduled to speak. Alongside the payrolls report, these represent the other key risk events for the session.

Given that all the major market events arrive at the back-end of the session, trade in Asia is likely to be light with position adjustments ahead of the payrolls report likely to be the prevailing theme.

Movements in the USD/JPY — often influential on the broader US dollar index during quiet data sessions in Asia — will also help to dictate broader direction across currency markets, including in the Aussie.

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