The Australian dollar came under renewed selling pressure overnight, dragged lower by the release of minutes from the US Federal Reserve’s FOMC meeting in April which revealed the prospect for a US rate hike in June was far greater than what many in markets had anticipated.
Here’s the key paragraph from the minutes which sent risk assets, including the Aussie dollar, into a spin.
Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 per cent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.
The odds of a 0.25% lift in the Fed funds rate in June jumped in response, doubling to 30% following the release of the minutes. As a result, US treasury yields spiked as did the US dollar, placing pressure on risk assets as a consequence.
The Australian dollar was no exception.
The AUD/USD finished the session at .7228, down 1.28% from Tuesday’s close. It has now lost 8% against the US dollar since April 21.
In something that will surely interest technical traders, it also saw the Aussie close below its 200-day moving average for the first time since March 2.
The last time the Aussie fell through and closed below this level was back in September 2014, it remained there for the next 383 trading sessions.
That’s something that Richard Grace, CBA chief currency strategist, picked up on in his Thursday morning note.
“AUD/USD has closed in New York below the 200-day moving average of 0.7260, suggesting further near-term falls in AUD/USD are technically more likely as momentum, algorithmic and technical traders add positions,” wrote Grace.
However, he believes that there are several fundamental factors that will continue to support the Aussie.
“Fundamentally, there remains good support for the AUD, so we don’t anticipate dramatically large declines in AUD/USD,” he wrote.
“The Australian economy is in good shape, global commodity prices (and Australia’s terms of trade) are recovering, Australia’s current account deficit is improving, and the USD should not get too strong.”
Looking ahead to Thursday’s trading session, Grace’s view that Australia’s economy is in good shape will be put to the test with the release of Australia’s jobs report at 11.30am AEST.
In recent months the unemployment rate has been steadily falling, largely due to lower labour market participation rather than strong jobs growth.
In April markets are looking for employment growth of 12,000, something that along with a steady labour force participation rate is tipped to see the unemployment rate edge up to 5.8%.
Grace believes that the report “will no doubt generate some additional intra-day volatility in AUD”, a reference the unpredictability of the ABS’ seasonally adjusted data.
If the recent trend is to be repeated, market attention, hence movements in the Aussie, will be largely influenced by the movement in the unemployment rate, not the employment figure nor breakdown between full time and part time workers.
For those looking for further information on the April jobs report, this quick 10-second guide will bring you up to speed.