Aussie finds support in weaker US employment costs

Australian Dollar:

The Australian dollar advanced into the close on Friday taking advantage of a poor U.S Labour market print and rallying through 0.73 U.S cents. The AUD touched intraday highs of 0.7353 but failed to convincingly break through key resistance levels and edged lower into the close after comments from Fed Reserve board member James (Jimmy) Bullard hinted at a possible September policy amendment. The Aussie plummeted 5.3% throughout July as a decline in global commodity prices, increased expectations of U.S rate adjustments, global financial instability (spearheaded by tumbling Shanghai composite and Greek debt crisis) and weakening Chinese growth prospects combined to prompt a rally in safe haven assets. With new ranges forming between 0.7180 and 0.7350 we look to the RBA,  retail sales and trade balance reports Tuesday for direction into the week ahead and Friday’s critical U.S non-farm payroll print.     

• We expect a range today of 0.7180 – 0.7355

New Zealand Dollar:

The New Zealand dollar moved lower throughout domestic trade after a steep decline in ANZ business confidence. Breaking below 0.6550 the Kiwi found support, advancing on the back of weaker than anticipated U.S labour market costs. Driven back through 0.66 the NZD touched intraday highs of 0.6650 before edging lower into the close. While the bearish trend remains intact attentions turn this week to Wednesday’s unemployment report ahead of Friday’s crucial non-farm payroll numbers.

• We expect a range today of 0.6510 – 0.6710

Great British Pound:

The Great British Pound advanced against most major currency counterparts through the last week of July as investors prepare for a raft of headline data events in the week ahead. The Bank of England (BoE) appears to be moving toward a tighter monetary policy stance with analyst anticipating a rate adjustment within the next 12 months after a string of strong and stable macroeconomic data sets. Cable advanced nearly 1% and held onto gains above 1.56 on Friday touching intraday highs of 1.5657 before edging lower into the close. Attentions now turn to the BoE has made a shift in policy releasing its rates decision, economic forecast, MPC minutes and official vote simultaneously on August 6th choosing not to delay the issuance of its minutes and official vote. With investors anticipating little change in the commentary surrounding Thursday’s rate announcement the focus will be directed toward the official vote and signs members are moving toward a less accommodative monetary policy.

• We expect a range today of 2.1250 – 2.1500

Majors:

The U.S Dollar closed lower Friday falling against a basket of major currency counterparts after increases in employment costs failed to meet market expectations. A record low increase in labour costs in the second quarter coupled with a decline in consumer sentiment dampened expectations consumers will drive inflation and suggests the labour market is still short of running at full capacity. The soft print hampered interest rate bets and suggestions the Federal Reserve will amend its accommodative monetary policy stance come September and forced the Dollar index downward. The world’s base currency then found support in stronger than anticipated Chicago factory activity while Fed member Jimmy Bullard suggested the FOMC was “in a good position to make the first normalisation move”. The comments helped put the brakes on shorting of USD long bets and positions stabilised into the close.  

The Euro recouped much of the week’s early losses through Friday bolstered by stronger than anticipated inflation data. Core European Monetary Union (EMU) CPI data printed above market estimates and fuelled a an upward rally paring losses and touching intraday highs of 1.1088 before edging back below 1.10 to close the session.

With a series of headline data events in the week ahead attentions will be primarily focused on Today’s PCE price index measure of inflation and Friday’s Non-Farm Payroll print, wherein a strong read will likely trigger a bullish run and solidify expectations of a 2015 rate hike.

Data releases:

• AUD: AIG Manufacturing Index, MI Inflation Gauge, HIA New Home Sales and ANZ Job Advertisements
• NZD: No Data
• JPY: Final Manufacturing PMI
• GBP: Manufacturing PMI
• EUR: Italian, French, German, Spanish and EMU Manufacturing PMI
• USD: Core PCE Price Index, Personal Spending and Income, ISM Manufacturing PMI, Construction Spending and FOMC Member Powell Speaks.