The Australian dollar is getting whipsawed around

Photo: iStock

The Australian dollar endured a quiet session on Wednesday, trading in a thin range throughout the day.

Here’s the scoreboard as at 7.50am AEDT.

AUD/USD 0.7675 , 0.002 , 0.26%
AUD/JPY 87.61 , 0.63 , 0.72%
AUD/CNH 5.0717 , -0.0046 , -0.09%
AUD/EUR 0.6607 , 0.0035 , 0.53%
AUD/GBP 0.5794 , 0.0031 , 0.54%
AUD/NZD 1.1144 , -0.0033 , -0.30%
AUD/CAD 0.9875 , 0.0013 , 0.13%

Having started the session at .7655, the AUD/USD slowly ground higher over the course of Asian and European trade, eventually hitting a high of .7688 before sliding lower as North American markets opened.

A strong ADP National Employment report for October, pointing to the likelihood of a rebound in US non-farm payrolls later in the week, may have contributed to the Aussie’s slide.

Ahead of the US Federal Reserve’s November interest rate announcement, the Aussie was whipsawed around, jumping, then falling, mirroring similar moves in US treasury yields.

The initial spike coincided with the release of the ISM’s US manufacturing PMI report for October. It came in at a still-strong 58.7, although that was below the 60.8 level of September and forecasts for a decline to 59.5. A reading above 50 indicates that activity levels improved from a month earlier.

When the FOMC decision finally arrived at 5am AEDT, the AUD/USD showed very little reaction, perhaps an unsurprising outcome given the statement was largely as expected.

“The economic outlook was upgraded slightly to ‘economic activity has been rising at a solid rate despite hurricane-related disruptions’ from previous descriptions using the adjective moderate,” said Imre Speizer, senior market strategist at Westpac.

“Apart from a hurricane-related increase in fuel prices, core inflation was seen as still ‘soft’. Near term risks to the outlook are roughly balanced, the statement overall consistent with a December rate hike.”

Speizer says the FOMC statement helped to lift the US bond yields and dollar, keeping the Aussie’s gains in check.

“US 10-year treasury yields fell from 2.39% to 2.35% ahead of the FOMC and partly retraced to 2.38% afterwards,”he said. “Fed fund futures yields firmed slightly post-FOMC, pricing the chance of a December rate hike at 98%.”

As a result, the Aussie is now trading below its earlier session highs at .7675.

AUD/USD 5-Minute Chart

Turning to the day ahead, it’s a near-repeat of Wednesday with most of the big events arriving in the latter half of the session.

In Australia, markets will receive trade and building approvals data for September at 11.30am AEDT.

The trade surplus is expected to swell to $1.2 billion, up from $989 million in August, while building approvals are tipped to decline 1.0% after a 0.4% lift reported previously.

Outside of those releases the calendar is devoid of any major events in Asia.

Later in the session, most attention will be on US President Donald Trump’s revelation as to who will be the next chair of the US Federal Reserve. Jerome Powell is seen as the hot favourite with the WSJ even reporting that it’s now a done deal.

The market reaction so far has been extremely limited, perhaps reflecting that it was already largely priced in. We’ll still wait for official confirmation from Trump himself.

The other big event of the session will be the Bank of England’s (BoE) monetary policy meeting, an event where the bank is widely expected to lift interest rates for the first time in a decade.

Given that’s also priced in, the language accompanying the decision will likely dictate direction in the UK pound and gilts.

The decision will arrive at 11pm AEDT.

Outside of those events, markets will also receive a raft of manufacturing PMI readings from continental Europe, German unemployment, along with initial jobless claims, labour costs and Empire State manufacturing index from the United States.

They’ll likely play second fiddle to the events mentioned above.

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