The Australian dollar has been hosed

  • The Australian dollar was hosed on Thursday, falling heavily against all of the major crosses.
  • Increased speculation about an RBA rate cut, weak economic data from Europe and a rebound in the greenback all contributed to the Aussie’s weakness.
  • The economic calendar is quiet in Asia today. In the past, that’s often seen the Aussie move in lockstep with the Chinese yuan.

The Australian dollar was hosed on Thursday, falling heavily against all of the major crosses despite the release of another solid Australian jobs report.

Here’s the scoreboard at 7.50am in Sydney on Friday.

AUD/USD 0.7091 , -0.005 , -0.70%
AUD/JPY 77.68 , -0.58 , -0.74%
AUD/CNH 4.8179 , -0.0322 , -0.66%
AUD/EUR 0.6270 , -0.0004 , -0.06%
AUD/GBP 0.5430 , -0.0033 , -0.60%
AUD/NZD 1.0480 , -0.0037 , -0.35%
AUD/CAD 0.9467 , -0.0058 , -0.61%

It was a tale of two halves for the Aussie dollar during the session, initially rising before slumping towards the close.

The Aussie was initially provided a boost by a stronger-than-expected Australian jobs report for December — the unemployment rate fell to the lowest level since June 2011 while employment growth rose strongly for a second consecutive month, albeit driven by part-time hiring.

After helping lift the AUD/USD as high as .7166, the Aussie began to reverse on news that the National Australia Bank had — belatedly — decided to join Australia’s other big four banks in raising variable mortgage rates for its customers independent of the RBA. That, in turn, led to speculation that it will pressure the RBA to cut official interest rates later in the year.

“We expect Australian interest rate futures to continue pricing the risk of RBA rate cuts and this will remain a major headwind for AUD,” said Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.

“The probability of a 25 basis point RBA rate cut by year end has increased to 57% from 51% on Monday.”

With the NAB move placing downward pressure on Australian bond yields, it subsequently saw the AUD/USD slip back below the .7100 level late in Asia trade.

After attempting to break back above the figure in early European trade, selling returned at the start of the North American session as a steep fall in the euro following the ECB’s monetary policy decisions led to broad-based strength in the greenback, seeing the AUD/USD drop to as low as .7081 before rebounding modestly towards the close.

AUD/USD Hourly Charts

“[ECB President Mario] Draghi highlighted the continued weakness in recent data releases and cited an increase in both European and global risks,” said Tim Riddell, Macro Strategist at Westpac Bank.

“This appeared to shift the ECB from having a balanced risk approach but Draghi insisted that the ECB had further time to assess the state of the expansion and that there would be no shift in their views and policy until March when they receive the next update on staff projections.

“The initial response of markets was to mark down both rates and the euro.”

A string or weak European flash PMI reports for January also undermined the growth-linked Aussie, doing little to alter the view that the global economy is continuing to lose momentum in early 2019.

The latest trade headline were also unhelpful for the Aussie’s cause with US Commerce Secretary Wilbur Ross assessing that trade negotiations with China were “miles and miles” from being resolved.

“There’s been a lot of anticipatory work done but we’re miles and miles from getting a resolution and frankly that shouldn’t be too surprising,” Ross told CNBC, referring to the next round of trade talks that will begin in Washington next week.

Ross softened those remarks by adding “there’s a fair chance we do get to a deal”.

Turning to the day ahead, it look set to be a quiet one with little on the economic calendar.

Tokyo CPI data for January is the highlight in Asia while German business confidence and UK retail turnover will be the headline acts in the second half of the session. They’re unlikely to shift the dial on market pricing by any significant margin, leaving headlines, techncials and positioning to dictate broader market direction.

Given how quiet the data calendar is, the movements in the Chinese yuan may prove to be influential on the Aussie dollar today. That’s often been seen during quiet periods in the recent past.

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