The Australian dollar is drifting ahead of key jobs data

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  • The Australian dollar drifted higher against the greenback on Wednesday, partially reversing the declines seen on Tuesday.
  • The bulk of the move occurred in Asia, and mirrored strength in the Chinese yuan.
  • The British pound and New Zealand dollar were the standout performers for the session, the former benefiting from speculation that a hard Brexit is looking unlikely while the latter was helped by a slight upside beat in Q4 CPI.
  • Australia’s unemployment report for January will be released today. Flash composite PMI reports from the Eurozone and US will also be of interest. The ECB will announce its January monetary policy decision.

The Australian dollar drifted higher against the greenback on Wednesday, partially reversing the losses seen a session earlier.

However, it had mixed fortunes against the crosses.

Here’s the scoreboard at 7.55am in Sydney on Thursday.

AUD/USD 0.7142 , 0.002 , 0.28%
AUD/JPY 78.26 , 0.37 , 0.48%
AUD/CNH 4.8505 , -0.0032 , -0.07%
AUD/EUR 0.6274 , 0.0005 , 0.08%
AUD/GBP 0.5464 , -0.0032 , -0.58%
AUD/NZD 1.0517 , -0.0029 , -0.27%
AUD/CAD 0.953 , 0.0017 , 0.18%

The bulk of the AUD/USD uplift occurred in the Asian session, undoubtedly helped by a reversal in the Chinese yuan.

As seen in the chart below, the AUD/USD continues to move in lock-step with the offshore traded yuan, or CNH.

There was no major catalyst to explain the move.

Thomson ReutersAUD/USD (yellow, RHS) v USD/CNH (white, LHS, inverted). 5-minute chart.

Against the crosses, the Aussie also gained against the Japanese yen, the latter undermined by dovish commentary from the Bank of Japan following its January monetary policy decision and modest gains in US stocks. It also pushed higher against the Canadian dollar as Canadian retail sales fell heavily in December, logging the largest decline since March.

Like the Aussie, the New Zealand dollar also had a good session, rising strongly in Asia on the back of data showing underlying inflation pressures continued to build modestly in the final three months of 2018.

As was the case on Tuesday, the British pound was the standout performer on Wednesday, continuing to benefit from speculation that a no deal Brexit at the end of March is looking increasingly unlikely.

“Rather than face the growing likelihood that Brexit will be delayed and/or even reversed, some hard line pro-Brexit MP’s appear more willing to provide their support behind Theresa May’s Brexit deal,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.

Turning to the session ahead, the vice-like grip the Chinese yuan has over the Aussie may temporarily slip today with the release of Australia’s jobs report for December.

Employment is tipped to lift by 18,000 following a 37,000 increase in November. With participation expected to remain steady, the unemployment rate is expected to hold at 5.1%.

This 10-second guide has more information on what to look out for in the report. It will arrive at 11.30am AEST.

Elsewhere, the Commonwealth Bank’s flash Australia Composite PMI for January will be released at 9am AEDT. Japan’s flash manufacturing PMI report, also for January, will hit at 11.30am AEDT.

The PMI deluge continues later in the session with manufacturing and services readings from the Eurozone and United States. US initial jobless claims data will also be released, although it will be hard to read much into it given it will be impacted by the partial government shutdown.

In reality, the main highlight for the session will likely be the ECB’s January monetary policy decision and press conference that will get underway from 11.45pm AEDT.

“Markets will be keen to hear from the ECB on whether the deterioration in data since its last meeting has shifted its view,” says Ray Atrill, Head of FX Strategy at the National Australia Bank.

“We envisage some modest downgrade to the 2019 growth downgrade but no formal shift in guidance on monetary policy, so a ‘dovish tilt’ but no more at this stage.

“One particular point of interest will be any hint from Mr Draghi on the willingness to undertake fresh TLTROs (Targeted Long Term Refinancing Operations) given the heavy upcoming maturity schedule, in Italy in particular. We think it’s premature to expect anything on this today.”

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