Did the Aussie miss a beat ?
|Markets have remained quite hectic in the past three weeks. After announcing a fresh round of tariffs for 1 September 2019, initially postponed after a G20 summit in Osaka with People’s Republic of China President Xi Jinping and finally partially reversed two weeks later, US President Donald Trump is pushing financial markets into a roller coaster. Additionally, the recent reversal of the 2-year and 10-year US Treasury yield curve, followed by the publication of poor data in Germany and China spooked investors, which sold off across the board. Consequently, major equity indices are set for their worst monthly percentage decline of the year, with the S&P500 and EuroStoxx50 at –5.15% and -4.70% respectively while Japanese Nikkei 225 dropped by -4% since August. In the meantime, it seems that the Aussie continues to trade indifferently despite mounting trade tensions among its main trading partners. As was the case last Tuesday when the RBA decided to abstain from cutting rates, although announcing that further easing in monetary policy was very likely in the future, today’s release of job data, including an upbeat job creation for the month of July of 41’100 (consensus: 14’000) and albeit an unchanged unemployment rate given at 5.20%, AUD beats G10 currencies across the board.
The insensitivity to current market sentiment yet raises questions as the recent acceleration in labor growth, a key indicator used by the RBA to measure the health of the economy, including inflation, is not expected to sustain. As stated by RBA Deputy Governor Guy Debelle: “businesses are waiting to see how the uncertainty resolves rather than invest”, confirming that companies operating in the country are not willing to increase workforce as business activities are slowing, thus favoring a downturn in the foreseeable future. Under these circumstances, a rate cut from current Cash Rate maintained at 1% by the RBA at its 1 October 2019 monetary policy meeting is becoming more and more realistic.
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AUD/USD, currently trading at 0.6768, should hold this morning’s gains, approaching 0.6790 short-term amid disappointing US economic releases.
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