The Australian dollar continues to lose ground

Jeff J Mitchell/Getty Images

The Australian dollar is under pressure, falling to the lowest level since May 12 in overnight trade.

Elias Haddad, senior currency strategist at the Commonwealth Bank, said the weakness was driven by a multitude of factors, including signs that the US labour market remained strong in May.

“The US dollar recovered overnight against all major currencies on favourable US economic activity,” he said.”The ADP national employment rose more than expected in May, initial jobless claims remains near multi-decades low and the ISM manufacturing index ticked-up 0.1 points to 54.9 in May.”

And while the greenback gained support from firm data, the Australian dollar was undermined by weak economic data both at home and abroad.

“Australia’s disappointing Q1 capital expenditure report, China’s weak May Caixin Manufacturing PMI and the stronger CNH [Chinese offshore traded yuan] undermined the AUD,” says Haddad, noting that a “firmer CNH is a potential drag to Chinese economic activity and demand for base metals”.

Iron ore prices also continued to slide, extending the drop from late February this year to 41%. Iron ore is Australia’s largest goods export by dollar value.

Those factors combined to keep the Aussie under pressure, not only against the US dollar but also against the major crosses.

Here’s the scoreboard at 8am AEST.

AUD/USD 0.7372 , 0 , 0.00%
AUD/JPY 82.09 , 0.01 , 0.01%
AUD/CNH 4.9775 , 0.002 , 0.04%
AUD/EUR 0.6573 , 0 , 0.00%
AUD/GBP 0.5722 , -0.0001 , -0.02%
AUD/NZD 1.0436 , -0.0003 , -0.03%

After a flurry of economic data to start the month, the calendar in Asia slows to a crawl on Friday, likely ensuring that trade will be quiet ahead of the release of May’s crucial US non-farm payrolls report later in the session.

Many believe that a strong outcome will all but cement the case for a rate hike from the US Fed in two weeks time.

Markets expect payrolls to grow by 180,000, leaving the unemployment rate at a decade-low level of 4.4%.

With inflationary pressures in the US receiving plenty of attention at present, Haddad says average hourly earnings will be influential on market movements when the report is released at 10.30pm AEST.

“Average hourly earnings growth will be a bigger driver of near-term US interest rate expectations and the USD than the pace of job gains,” he says. “Market participants expect average hourly earnings to quicken at an annual pace of 2.6% in May from 2.5% the previous month.”

Haddad says that a figure of 2.6% or higher “can offer the USD more intra-day support”.

Aside from the payrolls report, markets will also receive producer price inflation from the Eurozone and international trade figures from the US.

AUD/USD Hourly Chart

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