It could be a wild session for the Australian dollar today

Photo: iStock

The Australian dollar weakened on Thursday, undermined by a weak domestic trade report and profit-taking from traders after it’s recent surge higher.

Here’s the scoreboard just before 7am AEST.

AUD/USD 0.7947 , -0.0015 , -0.19%
AUD/JPY 87.45 , -0.72 , -0.82%
AUD/CNH 5.3471 , -0.0113 , -0.21%
AUD/EUR 0.6695 , -0.002 , -0.30%
AUD/GBP 0.6047 , 0.0026 , 0.43%
AUD/NZD 1.0687 , -0.0029 , -0.27%
AUD/CAD 1.0001 , -0.0011 , -0.11%

The Aussie gave back ground against all majors except the UK pound, maintaining its earlier session losses throughout the course of trade. Although it was already weakening before its release, the losses in Asia accelerated following the release of Australia’s June trade report which reported a far smaller surplus than expected.

That seemingly sealed the Aussie’s fate for Thursday, leading it to drift in the second half of the session despite the release of mixed economic data from the United States.

AUD/USD Hourly Chart. Source: Thomson Reuters

While the Aussie was broadly weaker, it managed to climb against the British pound following the release of the Bank of England’s (BoE) August monetary policy decision and quarterly inflation report.

Ray Attrill, head of FX strategy at the National Australia Bank (NAB), said that it was a combination of factors that drove the pound lower.

“Ahead of the decision there was speculation that chief economist Andy Haldane might, in light of recent remarks, shift his vote on the Bank Rate decision in favour of an immediate rate rise. As it transpired, the vote was 6-2 versus 5-3 last time,” said Attrill.

That wider majority to hold interest rates steady immediately undermined the pound, something that continued in BoE governor Mark Carney’s press conference.

“Carney gave a pretty downbeat assessment in his post-meeting press conference, largely due to Brexit uncertainties,” said Attrill. “The Bank also downgraded its growth forecast — now 1.7% from 1.9% for 2017 and 1.6% from 1.7% in 2018.”

Turning to Friday session, somewhat unusually, the Aussie’s movements will not be entirely dominated by the release of the latest US non-farm payrolls report for July in early North American trade.

There’s several key releases scheduled domestically, including June retail sales and the Reserve Bank of Australia’s (RBA) quarterly Statement on Monetary Policy (SoMP).

After two months of strong growth, retail sales are tipped to slow markedly in June with the median economist forecast centred around an increase of 0.2%. Individual forecasts range from a decline of 0.2% to an increase of 0.8%, something that likely reflects uncertainty over the whether the strength in April and May was driven by one-off weather-related events.

This report will also take on more significance than usual given it will also contain quarterly retail volumes, something that will feed into household consumption in Australia’s Q2 GDP report, the largest component within the Australian economy.

Volumes — adjusted for price movements — are tipped to surge by 1.2% over the quarter, something that would add significantly to GDP growth. Individual economist forecasts range from an increase of anywhere between 0.6% to 1.5%.

“Knee-jerk market reaction is more likely to come from the monthly than quarterly reading and where a negative number may be needed to take much of a bite out of the Aussie,” says Attrill.

Released alongside the retail sales report at 11.30am AEST, the Reserve Bank of Australia will also release updated inflation, growth and unemployment forecasts in its quarterly SoMP.

“The RBA’s August post-meeting statement noted ‘the Bank’s forecasts for the Australian economy are largely unchanged’,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.

“This suggests the quarterly forecasts in the RBA’s SoMP will not contain any material changes other than a modest downward revision to the inflation outlook because of the weak Q1 outcome and higher AUD.”

After those twin risk events arrive midway through the Asian session, trade will likely quieten down ahead of the release of the latest US non-farm payrolls report for July at 10.30pm AEST.

Payrolls are tipped to increase by 183,000, down from 222,000 in May, with the unemployment rate tipped to edge down 0.1 percentage point to 4.3%.

Given concerns over the outlook for US inflationary pressures, average hourly earnings and the underemployment rate will be watched closely by traders, and could be more influential than the payrolls and unemployment figures in the report..

The former is expected to lift 0.3%, something that would still see the year-on-year rate slow to 2.4%. The underemployment rate — a measure of labour market slack and a key factor in determining wage pressures — previously stood at 8.6%.

The payrolls report will almost certainly dominate movements in the Aussie as soon as it’s released, and will likely determine how the Aussie closes out the trading week.

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