Underpinned by last Friday’s June non-farm payrolls report in the US — which alleviated concerns about the American economy but was not enough to stir concerns over a potential near-term rate hike from the Fed — the Australian dollar has opened the new trading week at the highest level seen since June 24, the day after the UK Brexit vote.
Ray Attrill, global co-head of FX strategy at the National Australia Bank, explains why the non-farm payrolls report was close to a Goldilocks scenario for risk assets, including the Australian dollar.
“The US non-farm payrolls headline rise of 287,000 comfortably exceeded expectations (180k) but wasn’t backed up by the subsidiary details in the report with the unemployment rate higher, small net downward revision to the prior two months payrolls and hourly earnings up just 0.1%,” said Attrill in his Monday morning note.
“The data was seen as validating a continued wait-and-see approach from the Fed, with no US primary dealer surveyed after the data believing the Fed will move before December even if the prospects for a September move are now less negligible than prior to the payrolls report.”
As a result, the AUD/USD screeched higher on Friday evening, eventually closing the session buying .7567, up 1.2% on Thursday’s closing level.
As at 7.50am AEST, it currently fetches .7559. From the lows of June 24 — the peak of the Brexit carnage — the Aussie has now gained over 3.5%.
Elias Haddad, senior currency strategist at the Commonwealth Bank, expects that trend to continue.
“AUD/USD can move modestly higher this week towards 0.7650-0.7700,” says Haddad. “The prospect for more accommodative monetary policy stance from major central banks and reasonable global economic activity is AUD supportive.”
While he believes the Aussie will likely be biased to the upside this week, Haddad suggests that the prospect of additional rate cuts from the RBA, along with weaker Chinese economic data, will likely keep a check on gains.
“AUD/USD upside will be somewhat limited because we expect the RBA to cut rates by an additional 50bps in 2016,” he says.
“Moreover, a softer set of Chinese June economic activity data (Fri) could weigh on AUD later this week. Drags from the service industry are forecast to see annual GDP growth slow to an annual pace of 6.6% in Q2 (in line with consensus) from 6.7% the previous quarter.”
Attrill has a somewhat differing view, suggesting that upcoming domestic data will have to validate the view that further rate cuts are likely in order to keep the Aussie’s gains in check.
“Given the failure of Friday’s US payroll headline to provide support for the US dollar and with risk appetite close to year-to-date highs, it will likely require this week’s domestic event risk highlights (NAB business survey on Tuesday, consumer confidence on Wednesday and labour market data on Thursday) to collectively produce heightened expectations of August RBA easing if a renewed push above 0.76 on AUD/USD — and even a re-test of the 0.7648 24 June high — is to be prevented,” he says.
Nearer-term, there is little on the domestic or regional data calendars on Monday to help augment market pricing for additional rate cuts from the RBA.
Domestically, housing finance data will be released by the ABS at 11.30am AEST. While there is plenty of interest in this released — particularly towards investor lending — Haddad believes that it won’t generate significant volatility in markets.
“Australian May housing finance data is unlikely to generate much AUD volatility,” he says. “We are looking for a 2.7% MoM fall in the number of owner-occupied loans (consensus -2% MoM), with the value of total loans unchanged.”
Regionally there are no major releases scheduled, likely ensuring that the performance of Chinese markets, crude futures and the Japanese yen — often influential during quiet trading sessions in Asia — will be influential on the Aussie today.
Here’s the Aussie dollar scoreboard as at 7.50am AEST.
- AUD/USD 0.7559 , -0.0008 , -0.11%
- AUD/JPY 76.03 , 0.02 , 0.03%
- AUD/CNH 5.0649 , -0.002 , -0.04%
- AUD/EUR 0.6840 , -0.0001 , -0.01%
- AUD/GBP 0.5837 , 0.0002 , 0.03%
- AUD/NZD 1.0360 , 0 , 0.00%