Risk appetite, a surge in commodities and a weaker USD send the AUD above 0.7250

Daily currency update

The Australian dollar surged by 0.72 US cents through trade on Thursday, buoyed by a weaker USD, a higher appetite for risk and strength across key commodities. Having tracked sideways for much of the domestic session the AUD lifted off intraday lows at 0.7150 through the early hours of overnight trade as strength across commodities helped underpin recent gains. Copper prices rose 5% while oil prices continued moving higher amid optimism that China’s re-opening will prompt a surge in demand. Having edged through 0.72 US cents the AUD continued its upward trajectory following a softer than anticipated ADP employment print. While traditionally a poor marker for overall labour market health the weak read, coupled with signs of employment softness within the manufacturing industry and a broader uptick in unemployment claim filings suggests the job market in the US is softening, albeit from a very high base. Risk appetite surged in the wake of the release as investors adjusted expectations for Fed rate hikes, forcing the USD lower across the board. The AUD jumped through resistance at 0.7230 and 0.7250 to touch intraday highs at 0.7275 and opens this morning buying 0.7266 US cents. Our attentions turn now to US Non-farm payroll data. A print below consensus could fuel another risk on run and help push the AUD toward 0.73 into the weekly close.

Key movers

The US dollar underperformed through trade on Thursday as softer than anticipated ADP employment data and stronger commodity prices helped bolster demand for risk and sent the currency into a tailspin against most major counterparts. The Euro and GBP both advanced over half a percent testing 1.0750 and 1.2590 respectively while commodity-led currency enjoyed an even larger upturn. A softer than anticipated ADP employment report saw markets reverse gains enjoyed in the wake of Wednesday’s ISM manufacturing print as investors now see good news as a negative drag on risk and bad news as a positive. Why? Sustained strength across US macroeconomic data sets will embolden the Fed to maintain its aggressive approach to monetary policy normalisation, tightening conditions beyond a neutral setting at 2% and sapping cheap and available funding from the market. A correction in US data points and a softening in activity could give the Fed reason to pause hikes above neutral, meaning conditions remain favourable to investors. With that in mind our attentions turn to US non-farm payroll and ISM services data. Leading indicators suggest a softening in labour market performance. With the consensus for a 325K uptick in employment opportunities and an unemployment rate low of 3.5% a miss could see the USD sustain Thursday’s downturn into the weekend.

Expected ranges

• AUD/USD: 0.7080 – 0.7320 ▲
• AUD/EUR: 0.6680 – 0.6780 ▲
• GBP/AUD: 1.7220 – 1.7480 ▼
• AUD/NZD: 1.1020 – 1.1120 ▲
• AUD/CAD: 0.9020 – 0.9160 ▲