Australia
As expected the Reserve Bank of Australia left rates on hold at 1.5% on Tuesday but as expected the main interest was around the accompanying statement. The RBA noted “An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”. This suggests a stronger link between appreciation in the A$ and the RBA’s economic forecasts. Further appreciation would no longer complicate; rather it “would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.” We have thus seen a slide in the Australian dollar from a high on Tuesday at 0.8041 against the USD to a low for the week yesterday around 0.7912.
It has rallied on weaker US overnight data to open at 0.7954 as the market awaits retail sales data and the RBA’s statement on Monetary Policy later this afternoon. The Bank’s updated growth and inflation projections are likely to be scrutinised in light of the sharp appreciation in the AUD over the last few weeks. Buyers of the Australian dollar may get better levels after the RBA statement is released and the US Non-farm payrolls data is out later tonight.
New Zealand
New Zealand dollar trading has been choppy this week but the downside trend prevails. Yesterday saw the week’s low of 0.7490 against the USD after the 0.7523 high on Tuesday. The weaker Global Dairy auction results were not supportive, the NZD has opened better at 0.7445 but a break over 0.7460 has to be seen before any chance of further advances beyond 07500. We expect the NZD to remain flat around current levels as all attention today is on tonight’s crucial US jobs figures. A solid figure would see the Kiwi back under pressure next week. Also next week see the RBNZ release its MPS statement, we expect the RBNZ will leave the OCR at 1.75% and reiterate that monetary policy is on hold for the foreseeable future. The press release will probably emphasise the softer tone to recent data, and the RBNZ’s discomfort with the high exchange rate. This should not be positive for holders of the NZD. “The press release will probably emphasise the softer tone to recent data, and the RBNZ’s discomfort with the high exchange rate.
United States
The train crash that is the Trump administration continues on with little respite. The latest news that special counsel Robert Mueller, who is probing Russia’s interference in 2016 U.S. elections as well as possible collusion with Trump campaign, has impanelled a grand jury, briefly rattled markets that have recently shown little reaction to the weeks of ongoing turmoil in Washington. Stocks had traded little changed for most of the session with corporate earnings in focus before Friday’s jobs report. Tonight’s Non-farm payroll data remains crucial, as last night’s ISM manufacturing data was disappointing, falling to 53.9 – its lowest reading since August last year, suggesting the service sector lost momentum into Q3. The ADP employment figure on Wednesday, usually seen as an indicator of the Friday jobs figure was also disappointing down to 178k from last month’s 191K Expectations for tonight’s NFP, which will be accompanied by key related data on the unemployment rate and wage growth, are currently around 180,000 jobs added for the month of July. The July unemployment rate is expected to have dropped to 4.3% from the previous month’s 4.4%, while average hourly earnings are expected to have increased by 0.3% against the previous month’s 0.2% wage growth. A stronger than expected figure would help to steady the USD, signalling that the Fed’s rate hike policy remains on track.
United Kingdom
As expected the Bank of England left rates on hold at 0.25% last night but downgraded its GDP and wage growth forecasts. GDP forecasts were lowered, wage growth seen weaker (3% vs 3.5% next year) and uncertainty in regard to Brexit also acknowledged. This is not the backdrop to lift rates near term if you believe that the inflation rise is temporary and a result of sterling’s post referendum weakness. In addition the Governor noted that Brexit is casting a big shadow over the outlook and confidence in an orderly exit is starting to fade with EU negotiations the most important factor for the outlook. Unsurprisingly the UK Pound was sold lower against nearly all its major trading partners. Sterling price action was volatile, starting the day on a strong footing, advancing to a fresh yearly high of 1.3266 against the USD following the release of the latest UK services PMI that beat expectations at 53.8, but the BOE was a game changer, which saw selling kick in pushing the pound to a low of 1.3110 against the dollar. It is has marginally recovered and is now around 1.3143 but the trend is bearish. Support is at 1.3110 then 1.3075 and if the USD stages a recovery on better jobs data look for sterling to knock on the door of 1.3000 next week.
Europe
Softer data in the Eurozone for services and composite PMI’s combined with weaker manufacturing figures earlier in the week saw the EUR trade down to a 1.1830 low. Other data was also weaker, showing that Germany’s services sector advanced at its slowest pace since September 2016, resulting at 53.1 from 53.5, with the composite figure at 54.7 from 55.1. For the whole region, growth posted a six-month low according to Markit. However, the EUR shrugged off the weaker economic tone rising back to 1.1880 where it currently sits. Despite the little intraday volatility, the EUR/USD retains its bullish stance ahead of tonight’s NFP report and it seems unlikely that, even with a strong reading, the trend will change course, however a downward corrective move can’t be dismissed, particularly ahead of the weekend. Support is at 1.1830 then 1.1790…resistance at 1.1910.
Japan
The weaker US data has seen the USD continue to weaken against the JPY with the USD/JPY hitting a low of 109.94 back at Tuesday’s low. It has recovered slightly back above 110.00 at 110.05 but the JPY remains dominant on this cross. If 110.00 is broken again look for a slide towards 109.50. Politically PM Abe has just completed a cabinet reshuffle, suggesting that he still has a solid base in the LDP, now an early resignation of Prime Minister Abe, which could lead to a less dovish BOJ policy stance, is a much lower risk. However, there will be new opinion polls over the weekend that will be worth monitoring. As an early snap election remains a tail risk, two lower house by-elections on 22 October will also be crucial for judging the momentum of the Abe cabinet.
Canada
The U.S. is not the only country scheduled to release labour data tonight. We also get to see if labour market conditions eased in Canada after two strong months. If job growth slowed it could extend profit taking in USD/CAD but the amount of full time employment will be key. If the net change increases by only 10-20K and full time work is strong, then USD/CAD could still resume its slide but if full time jobs are lost, any amount of part time job growth may not be enough to make up the difference. Aside from the employment report, IVEY PMI is also on the docket and the pace of manufacturing growth will be just as important as investors scrutinize every piece of CAD data for weakness. Currently the CAD is trading around 1.2575 against the USD having come from 1.2430 at the start of the week. USD/CAD initial resistance is seen at 1.2650 with support at 1.2550 then 1.2500.