Aussie slides as unemployment rises

AUD/USD at two-week low

The Australian economy added a net 34,700 jobs in August, beating analysts’ expectations of a 10,000 increase by a long way. However, while the headline number looked good, the details showed that 15,500 full-time jobs had been lost and the gains were entirely in the part-time category.

Add to this a rise in the unemployment rate to 5.3%, which can partly be explained by an uptick in the participation rate to 66.2% from 66.1%, and the Australian dollar came under selling pressure across the board.

AUD/USD fell to an intra-day low of 0.6789 versus the US dollar after the data, the lowest level since September 4, and slid 0.1% to 73.46 versus the Japanese yen. AUD/USD has now fallen for two consecutive days and has tested the 50% retracement of the September 3-12 rally at 0.6791. AUD/USD is now at 0.6797.

AUD/USD Daily Chart

Source: OANDA fxTrade

Bank of Japan doesn’t join the easing party

In its rate setting meeting today, the Bank of Japan maintained its Interest Rate on Excess Reserves (IOER) unchanged at -0.1% and kept its current policy framework of “QQE with yield control” with asset purchases of 80 trillion yen per year. BOJ Governor Kuroda is scheduled to hold his press conference at 0600GMT.

USD/JPY is down 0.26% at 108.15 after testing the 100-day moving average support at 107.99.

USD/JPY Daily Chart

Source: OANDA fxTrade

Fed’s rate expectations disappoint

While the Federal Reserve delivered the 25 bps rate cut the markets had wanted, the rate outlook wasn’t as dovish as the market had hoped. The members’ dot plots didn’t show any predictions below 1.5%, implying there could only be one more cut sometime during this theoretical cycle. The tone of Powell’s statement was bullish on the economy, but suggested that this cut was yet another “insurance” cut given the external headwinds that are building.

Current market pricing implies only a 48% chance of a rate cut by year end, either at the October or November meetings, and the US dollar perked up after the Fed’s announcement, with the Dollar Index, a measure of the dollar’s value against six major currencies, rising 0.6% yesterday.

Bank of England stifled by Brexit

The Bank of England is another central bank to announce rate decisions today, but is unlikely to join the easing party. The bank is expected to remain on hold until the Brexit deadline on October 31 has passed, and a clearer picture of its impact on the economy may emerge. Ahead of the rate announcement, retail sales data for August will be published and are expected to show a flat reading month-on-month.

The US calendar features existing home sales for last month, with a 0.4% decline expected, along with the Philadelphia Fed manufacturing survey for September. That’s seen sliding to 11.0 from 16.8.