The Australian dollar is looking 'particularly vulnerable'

Moritz Stragholz / Barcroft Imag / Barcroft Media via Getty Images

The Australian dollar has opened the trading week below the 78 cent level for the first time since mid-July, undermined by continued concern about the health of Australian household finances following the release of weak retail sales in August.

Here’s the scoreboard as at 7.45am AEDT.

AUD/USD 0.7771 , 0.0002 , 0.03%
AUD/JPY 87.49 , -0.02 , -0.02%
AUD/CNH 5.1666 , 0.0026 , 0.05%
AUD/EUR 0.6624 , 0.0004 , 0.06%
AUD/GBP 0.5930 , -0.0011 , -0.19%
AUD/NZD 1.0999 , 0.0035 , 0.32%
AUD/CAD 0.9741 , 0.0011 , 0.11%

Having fallen to as low as .7730 on Friday following news that the Reserve Bank of Australia had not completely ruled out further interest rate cuts should the household sector weaken further, the AUD/USD rebounded later in the session following a mixed, weather-impacted US non-farm payrolls report for September.

Total payrolls fell by 33,000 over the month — the first decline reported in seven years — missing forecasts for an increase of 80,000.

However, that was offset by a steep increase in average hourly earnings and sharp decline in the national unemployment rate, casting doubt over the weakness in the headline payrolls figure.

“The US Bureau of Labour Statistics warned the ‘possible effects of the hurricanes’ partly reflected the change in earnings,” said Elias Hadad, senior currency strategist at the Commonwealth Bank.

“The explanation here was that those unable to work because of the hurricanes would be mostly lower-paid and casual workers, biasing up the average earnings of those who were at work,” added Ray Attrill, head of FX strategy at the National Australian Bank.

Attrill says that markets will get further clarification on the impact of weather disruptions on the labour market when individual state data is published on October 20.

Given the uncertainty generated by the mixed payrolls report, it allowed the AUD/USD to climb off the mat in the latter parts of Friday’s session despite steep falls in base metals markets are renewed concern that North Korea was readying to test another intercontinental ballistic missile.

The latter hasn’t occurred, at least not yet.

AUD/USD Hourly Chart

After a flurry of activity in the latter parts of last week, the economic data calendar slows to a crawl today with US, Canadian and Japanese investors all enjoying a long weekend.

Chinese markets will resume trade after a week-long holiday, providing some offset to the lack of market participation elsewhere.

On the data front, markets will receive the Caixin-IHS Markit China services PMI report for September. That will be followed later in the session by German industrial output and Eurzone investor sentiment.

It’s questionable as to how much these data points will move financial markets, if at all.

Given the quiet start to the week, gyrations in Chinese commodity futures, along with those in the onshore traded Chinese yuan (CNY), will likely dictate the Aussie’s direction today.

“AUD/USD is particularly vulnerable to any break of the 0.7690/00 area this week,” says the NAB’s Atrill. “China data and their return to global commodity markets after a week holiday, and local business and consumer confidence reading this week area all important, at a time when speculative position on the AUD remains close to 2013 highs.”

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