The Australian dollar has established a firm foothold above the 74 cent level on Monday morning, continuing to find support following the release of last Friday’s US non-farm payrolls report in the US.
Despite firm payrolls growth and a surprise decline in the unemployment rate to just 4.6% — a new nine-year low — market movements were driven by a surprise decline in US average hourly earnings, something that led to lower US bond yields and a softer US dollar.
“USD drifted slightly lower on Friday and US 10-year Treasury yields dipped 5bps [basis points] to 2.38% following the mixed US non-farm payrolls report,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.
“Encouragingly, the US economy added 178,000 jobs in November, the unemployment rate fell to 4.6% and the broader U-6 underemployment rate declined 0.2% to 9.3%.
“However, the decline in the unemployment rate was partly the result of a 0.1% tick-down in the participation rate to 62.7%. Also, average hourly earnings growth slowed at an annual pace of 2.5% in November from 2.8% the previous month,” he added.
That was enough to boost the Aussie late last week, with the currency managing to cling onto most of those gains upon the open today.
Whether that remains the case on Monday will likely be determined by the result of a Italian referendum on constitutional reform — currently underway — that should be known during the first half of the Asian session on Monday.
“Polls in Italy close at 9am Sydney time and the first projections will start to unfold at 9:45am Sydney time,” says Haddad. “We think the market risk is a stronger EUR this week. Polls indicate the Italian referendum on constitutional reform will be rejected.”
While a “no” result has largely been priced in by financial markets, the question that most will want answered (presuming that that the pundits and polls are right — dangerous, I know) is whether that will mean Italian prime minister Matteo Renzi will make good on his promise to step down as PM.
This is yet another layer of uncertainty on top of the referendum, and will likely dictate just how severely financial markets react.
Haddad says that if Italians vote no, Renzi stepping down would probably trigger early elections in Italy during the first half of 2017.
Outside of the Italian referendum, there’s also a raft of major economic data that will arrive today, both in Australia and abroad.
Locally, markets will receive the November performance of services index (PSI) from the Ai Group at 9.30am AEDT. That will be followed at 11.30am by the release of ANZ job ads for November along with Q3 business inventories and company profits, GDP inputs.
Internationally, most attention will be on the release of services PMI readings from the US, China, Eurozone and UK over the course of Monday’s session.
Here’s the current Aussie dollar scoreboard as at 7.45am AEDT:
- AUD/USD 0.7452 , -0.0008 , -0.11%
- AUD/JPY 84.4 , -0.10 , -0.12%
- AUD/CNH 5.1210 , 0.0048 , 0.09%
- AUD/EUR 0.6997 , 0.0027 , 0.39%
- AUD/GBP 0.5860 , 0.0012 , 0.21%
- AUD/NZD 1.0424 , 0 , 0.00%
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