15th July 2021 - AUD/USD nears 0.7500 ahead of Australian employment figures

Market Headlines

Fed Chair Powell’s semi-annual testimony reiterated that conditions for tightening remain distant, and that the rise in inflation is considered to be transitory. The prepared testimony said: "reaching the standard of substantial further progress is still a ways off". Inflation has "increased notably," acknowledged the recent update, and will remain elevated in coming months, but "temporarily boosted by base effects" as well as from "strong demand in sectors where production bottlenecks or other supply constraints have limited production" which have led to rapid price increases. These effects should partially reverse as bottlenecks unwind. On the labour market, he repeated that while "conditions have continued to improve...there is still a long way to go."

The US dollar and bond yields fell after Fed Chair Powell said conditions for tightening were some way off. The S&P500 is up 0.3%, earlier making a record high. The US dollar index is down 0.4% on the day. EUR rose from 1.1780 to 1.1837. USD/JPY fell from 110.50 to 109.95. AUD initially fell, but the bounced off 0.7431 to 0.7486. NZD initially shed some of its RBNZ-led gains, but then bounced off 0.6984 to 0.7044. AUD/NZD preserved the RBNZ-led fall from 1.0700 to 1.0619.

US 2yr treasury yields fell from 0.26% to 0.22%, while the 10yr yield fell from 1.41% to 1.35%. Commodities, Brent crude oil futures fell 2.8% to $74 on higher inventories, copper fell 0.8%, and gold rose 1.0%. Iron ore fell 0.6% to $216

Overnight Currency Ranges

AUD/USD 0.7431 0.7485

EUR/USD 1.1772 1.1838

GBP/USD 1.3802 1.3890

USD/JPY 109.95 110.70

NZD/USD 0.6940 0.7043

USD/CAD 1.2420 1.2525

USD/CNH 6.4508 6.4844

AUD/JPY 82.10 82.51

AUD/NZD 1.0618 1.0715

AUD Thoughts

AUD/USD bulls take a breather around 0.7485, following the first positive day of the week, amid early Thursday morning in Asia. The US dollar’s broad weakness, mainly due to Fed Chair Jerome Powell’s testimony, could be traced to the Aussie pair’s latest corrective pullback. However, the coronavirus (COVID-19) woes in the Oz nation could weigh on the key data, keeping the bears hopeful. Also important are the second-quarter GDP figures from Australia’s largest customer China, together with other key data from Beijing.

Powell put worked…

Fed’s Powell mentioned that a “lots of notice” would be given before adjusting the monetary policy in his bi-annual testimony. The central banker also signalled that the US economic recovery is still in its nascent stage while repeating a “transitory” outlook for inflation. Following his comments, the US dollar index (DXY) marked the heaviest losses in 18 days even as the US Producer Price Index (PPI) data for June kept screaming for reflation fears.

On the other hand, Australia’s Westpac Consumer Confidence came in better than -5.2% previous readouts to +1.5% in July. Further, Aussie PM Scott Morrison’s tailor-made relief package for Greater Sydney also placated bears even as New South Wales (NSW) extends lockdown for another two weeks. Additionally, Victoria is feared for local activity restrictions as exposure sites grow. As per the latest covid infection count per ABC News, the new daily cases were 108 for July 14 versus 100 on July 13.

It’s worth noting that Powell’s assurance of further easy money helped equities and gold also cheered the US dollar weakness, which in turn offered extra strength to the AUD/USD recovery. That said, US 10-year Treasury yields dropped 6.6 basis points, marking the heaviest slump in a week, closing Wednesday’s books around 1.35%.

Looking forward, Australia’s June month employment data are likely to bear the burden of the latest local lockdowns and may probe the AUD/USD recovery moves. The headlines Employment Change is expected to ease from 115.2K to 30K whereas Unemployment Rate could rise to 5.5% versus 5.1% prior. However, expectedly strong China Q2 GDP for QoQ, 1.2% versus 0.6% previous readouts may battle the bears. Furthermore, China’s Retail Sales and Industrial Production for June are likely to ease and can keep the pair pressured.

AUD/USD was firmer overnight helped by a generally weaker USD. Demand has grown in recent days and remains solid ahead of 0.7400 and again at 0.7380 while offering interest has grown above 0.7500.

Event Risk Data Today

Australia: The ABS will publish the June labour force survey. June Weekly Payrolls confirmed a recovery from the May Vic lockdowns, and the Labour Force survey was conducted too early to pick up NSW lockdown. Payrolls point to a 0.2% fall in original terms but is likely to be revised up. Market forecast (+20k) for employment is consistent with a flat print in original terms. The recovery in employment has also seen participation surge to a record high – outsized growth in female employment drawing a lot more women into the workforce. Meanwhile, there is a bit of a mismatch of new male jobs compared to where many of the job losses occurred, suggesting new entrants into the workforce are taking a sizable portion of the new jobs. Ahead of the July update, June inflation expectations printed the largest monthly increase in 4 years.

China: Markets are looking for Q2 GDP to advance 8.3%yr; the quarterly read is likely to be a touch below trend. Alongside this, we get the June partials: retail sales (market f/c: 22.8%yr ytd), industrial production (market f/c: 16.0%yr ytd) and fixed asset investment (market f/c: 12.0%yr ytd).

UK: The May ILO unemployment rate is expected to hold at 4.7%, with the furlough scheme providing ongoing support for the labour market.

US: Initial jobless claims are expected to take a further leg down to 350k in the week ending July 1; momentum should pick up in coming months as employment benefits roll off. June industrial production is expected to advance 0.6%, with output forging ahead on robust consumer spending. Two regional surveys, the Fed Empire State index (market f/c: 18.0) and the Philly Fed index (market f/c: 28.0) will give insight into the status of bottlenecks, upstream price pressures, and employment growth. Fed Chair Powell will deliver the second of his semi-annual testimonies, this time to the Senate Banking Committee. The FOMC’s Evans will discuss the economy.

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