US economy growing at a moderate pace

The USD continued to march higher as signs that the US economy is in a better place is driving sentiment. 

The US dollar index is now back above 81 and it is really hard to trade against the trend at the moment. Encouraging comments from the Beige Book about the US economy and a much better-than-expected Empire State manufacturing index reading kept the momentum going for the USD. The Beige book described the economy as having risen at a moderate pace across most of the US. Comments by Fed member Charles Evans, who is considered a dove, also made quite an impact. Evans said it makes sense to continue tapering in January, which reinforces the rhetoric we’ve been hearing from other Fed members since the payrolls reading.

AUD smashed on jobs

The AUD has been the main focus in Asian trade on the back of local jobs numbers. While the unemployment rate for December was steady at 5.8%, there was a big drop in full-time employment. The overall reading showed the economy lost 22,600 jobs, with 31,600 full-time jobs going and 9000 part time jobs added. The impact of the reading was devastating for the Australian dollar, as AUD/USD plunged to a low of 0.881 and broke through December lows. This is the lowest level for the pair since August 2010. We are likely to see this 0.88 round number support being tested in today’s session. Any further strength in the USD will only do more damage to the pair.

While there is no more major local data to look out for, we get unemployment claims out of the US which are expected to come in at 327,000. At the same time we have CPI data due out and considering inflation is the other major metric the Fed is closely watching; it will also carry significant weight.

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