Risk currencies rally against the USD

The main theme in global markets was broad weakness as the US government shutdown continues to roll on.

In the FX space, the US dollar lost ground to the majors. The move lower in the USD was triggered by the disappointing ADP non-farm payrolls reading which came in at 166k versus consensus of around 180k. With the threat of the official payrolls number not being released on Friday, this private payrolls reading was always going to carry more weight and that’s exactly how it played out. At the same time, Fed member Eric Rosengren was on the wires saying the political situation warranted the no-tapering decision, especially with the debt ceiling coming up. He said the Fed refrained from tapering its bond purchases last month because growth was lower than forecast and fiscal policy posed a risk to the outlook.

AUD/USD also recovered after having been sold on the back of disappointing building approvals data. The pair is now back within striking distance of the 0.94 handle where it now seems to be finding stability. We continue to feel AUD/USD is in the process of establishing itself in a new trading range (0.93-0.95) at higher levels. A positive reading from China’s non-manufacturing PMI reading, which came in at 55.4, also seems to be giving the Asian region a bit of a positive kicker. There is no major local data due out for the rest of the week and as a result we expect most of the moves to be on the USD side of the equation.

Positioning ahead of the BoJ

USD/JPY has remained directionless and fairly sidelined at around 97.50 heading into the BoJ. With the sales tax hike now official, traders are hoping the BoJ will be forced into action with further stimulus. Before we get to the BoJ we have US unemployment claims and the ISM non-manufacturing PMI reading due out later today.

Fed members will also continue to hit the wires with the likes of Powell, Dudley and Stein set to speak. Any further hints that the current political crisis will delay tapering would only lead to further weakness in the greenback.

Higher trading range for AUD/USDHigher trading range for AUD/USD

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