Greenback rallies on bullish Nonfarm Payrolls print

Daily Currency Update

The Australian dollar could not sustain its recent momentum last week, failing to push through the psychological 70 US cent mark as a less hawkish tone to the language in the RBA rate statement toward future interest rate hikes was released on Tuesday. Opening at 0.6968 against the greenback, the AUD/USD fell lower throughout the day as the quarterly RBA Monetary Statement released on Friday morning reiterated that the Reserve Bank of Australia expects to take further steps to normalise policy but is not on a pre-set path. The RBA also downgraded the outlook for economic growth and revised inflation forecasts higher to 7.75% by the end of this year before falling to 4.25% by the end of 2023. The AIG Services Index was also released on Friday but did little to move the needle despite rising by 2.9 points to 51.7 in July. Chief Executive of the National Employer Association Ai Group Innes Willox noted that there is a two-speed services sector emerging as businesses grapple with labour shortages and rising interest rates. The Australian dollar closed 0.82% lower to 0.6910, touching lows of 0.6870 as the greenback strengthened following a stronger Non-Farm Payroll print and reduction of unemployment in the United States to 3.5%. The Australian dollar opens this morning at 0.6908. We expect support levels to hold onto moves approaching 0.6870 while any upward push will likely meet resistance at 0.6950.

Key movers

The US dollar was the main winner on Friday following a better than expected Non-Farm Payrolls print, as the US economy added 528,000 jobs in July vs expectations of 250,000. Unemployment also declined to 3.5% as the labour market remains tight. Average earnings ticked higher to 0.5%, increasing year-on-year to 5.2%. It is expected the FOMC will remain aggressive in its monetary policy tightening and is likely to hike another 75 basis points in September as the CME Fedwatch Tool prices it as a 68% chance (up from 28% on the 29th of July). The US Dollar Index (DXY) which measures a basket of currencies against the greenback surged to an intraday higher of 1.0693 before closing at 1.0657 and 0.78% higher on the day. Elsewhere the Canadian jobs report was not as strong, seeing a drop of 30,600 jobs for the month of August, disappointing markets with the unemployment rate unchanged at 4.9%. The CAD/USD dropped to intraday lows following the news to 0.7699 before finishing 0.57% lower at 0.7725. Despite the biggest interest rate hike in 27 years by the Bank of England on Thursday, the Great British pound was no match for the greenback following suit lower with all G10 currencies. Halifax HPI which measures the price of homes saw its first drop in 12 months dropping 0.1% for the month. Cable slide 0.74% lower to 1.2067 on the day. This week investors focus on the last United States CPI print for the month of July due for release on Wednesday evening.

Expected ranges

• AUD/USD: 0.6870 – 0.6950 ▼
• AUD/EUR: 0.6750 – 0.6810 ▼
• GBP/AUD: 1.7300 – 1.7650 ▲
• AUD/NZD: 1.1000 – 1.1100 ▲
• AUD/CAD: 0.8900 – 0.8980 ▼