The Australian dollar is now below where it was trading prior to the release of Australia’s Q1 GDP report on Wednesday, continuing to slide in overnight trade.
Rather than Australian dollar weakness, Elias Haddad, senior currency strategist at the CBA, put the decline down to US dollar strength, something that resulted from investor disappointment towards the ECB policy meeting outcome announced overnight.
“The USD recovered overnight largely against EUR,” said Haddad in his Friday morning note.
“EUR came under downside pressure largely because participants were expecting the ECB to make a greater upward revision to their long-term inflation forecast, particularly following the rebound in crude oil prices.
“The lack of a lift in the ECB’s inflation forecasts leaves the door open to more aggressive easing measure by the ECB which will weigh on EUR,” he says.
With the US dollar ripping higher, the Australian dollar came under renewed selling pressure, eventually closing the session at .7229.
As at 7.40am AEST, the AUD/USD buys .7224.
Looking ahead to Friday trade in Asia, markets are likely to be quiet as investors await the release of the US non-farm payrolls report for May.
“Tonight’s US May labour market report is the main USD focus because it will shed more light on the pace of the Fed’s normalisation path,” says Haddad. “The increase in the US May ADP employment report and declining initial jobless claims point to a decent rise in US non-farm payrolls for May.”
However, despite strength in other US labour market indicators, Haddad believes the risks this evening for the headline jobs figure are slanted to the downside.
“We see downside risks to May non-farm payrolls because of slower US Q1 GDP growth and a large strike at a telecommunications business,” he says.
“Nevertheless, with the US economy near full employment, we continue to believe the market will pay more attention to the US wages data rather than the pace of US job gains. As such, the USD can edge higher if US average weekly earnings growth is stronger than consensus of 2.5% pa because it would further raise odds of a 28 July Fed funds rate hike.
“Interest rate pricing for a July Fed funds rate lift is 55%. We look for a Fed rate hike in July,” he added.
Before the arrival of the US jobs report at 10.30pm AEST, there’s a swathe of second tier releases scheduled in Asia, although none are likely to be market moving.
On the domestic front, markets will receive services PMI data for May at 9.30am AEST along with international arrival and departures figures for April at 11.30am AEST.
Regionally, the data calendar is quiet with with services PMI gauges from China and India the only major releases of note.
It all points to a quiet day of trade in Asia, following what has been a hectic week.