AUD back in focus ahead of jobs numbers

Once again US dollar weakness was the main theme in FX markets despite yet another Fed member hitting the wires with a fairly hawkish comment.

Fed member Sandra Pianalto suggested tapering may be warranted if the labour market continues to strengthen, and this cements the rhetoric we’ve been hearing from Fed members this week. Despite this, the USD lost ground to the G10 complex, with GBP/USD being a significant outperformer. A less dovish inflation report from the UK and comments from the BoE saw GBP/USD spike to a high of 1.553. While the BoE said it won’t be raising rates until unemployment dips below 7%, a higher than expected forecast for 2014 growth to 2.7% (from 1.9%) saw investors turn hawkish. The next level traders will be looking out for is the 1.575 region; this was the high from mid-June.

EUR/USD also remained bid and is currently sidelined at around 1.333, helped by a solid German industrial production reading. Later today we have the German trade balance and ECB monthly bulletin due out. AUD/USD is just hanging around the 0.90 level and will be back in focus today with local jobs numbers and China’s trade balance due out. Investors remain uneasy about China’s economy at the moment and therefore this might warrant some caution heading into the numbers. The market is looking for a 2% improvement in exports and a trade surplus of $26.9 billion.

On the local jobs front, the unemployment rate is expected to tick higher to 5.8% (from 5.7%), with 6,000 jobs added and a steady participation rate of 65.3%. The RBA has already flagged a gradual rise in unemployment but no doubt any misses on the jobs front would see AUD/USD sold at the 0.90 level. However, if China data surprises to the upside, this could be a catalyst for a squeeze higher in the near term.

USD/JPY slipped again overnight to a low of 96.33 as the USD continued to struggle. The last time USD/JPY was below 97 was on 20 July, with the lows from July being at 93.79. Data released from Japan this morning has helped USD/JPY recover from those lows and it is now at 96.70. While Japan’s current account balance was slightly below consensus, it did show a mild improvement from the previous reading. Japan’s fund flows data also showed an increase in foreign bond buying which is ultimately bearish for the yen. However, price action is still relatively subdued ahead of the BoJ.

The BoJ meets today and analysts expect no change in policy but no doubt the recent appreciation in the yen, and slide in the Nikkei, will be a cause for concern as officials would want to see the recovery remain on track.

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