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AUD/USD eases toward 0.6900 heading into the US NFP release

  • AUD/USD trims previous gains and eases to the 0.6900 area.
  • Moderate risk aversion amid the war in Iran is keeping US Dollar dips limited.
  • Markets remain flat on Good Friday-thinned trading, with all eyes on US NFP report.

The Australian Dollar’s (AUD) recovery attempt against the US Dollar (USD) has been capped a few pips ahead of the 0.6920 level. The pair has been trimming gains on Friday, returning to the 0.6900 area at the time of writing, with all eyes on the release of the US Nonfarm Payrolls report.

A moderate risk aversion is keeping safe haven assets like the US Dollar buoyed on Friday as the Iran war continues without a clear end in sight and the Strait of Hormuz remains closed, adding pressure on exporting economies such as Australia. 

Bahrain's proposal to reopen Hormuz finds opposition

The UN Security Council is expected to vote on a Bahraini proposal to force Iran to reopen the critical waterway, which has been watered down amid opposition from veto-wielding countries, China and Russia, while Iran warned that “provocative action” in the area will only complicate the situation.

On Thursday, data from Australia’s Bureau of Statistics revealed that the trade surplus widened to 5,686 million in February from the downwardly revised 2,258 million surplus in the previous month, beating market expectations of a 2,500 million gain. These figures endorse the hawkishly-leaning minutes from the last Reserve Bank of Australia (RBA) meeting and provided some support to the Aussie.

The focus today shifts to the US Nonfarm Payrolls report. Market expectations anticipate a 60K increase in net employment, following a 92K loss in February, with the jobless rate unchanged at 4.4%. Trading volumes are at unusually low levels due to the Good Friday holiday, and that might cause wild fluctuations in the case of a relevant NFP shock if price action hits liquidity pockets.

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

Author

Guillermo Alcala

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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