Market Headlines
US non-farm payrolls rose by 943k in July, above the 870k expected, with June revised higher from 850k to 938k. The unemployment rate fell from 5.9% to 5.4% (5.7% expected). Average hourly earnings rose 0.4% (vs 0.3% expected, June revised from 0.3% to 0.4%), for a 4.0% y/y pace (versus 3.7% y/y previously). The participation rate rose to 61.7% from 61.6%. Overall, this is a very strong labour report.
The S&P500 was volatile but managed to close up 0.2% at a fresh record high. US 2yr treasury yields were volatile post jobs data, but settled 1bp higher at 0.21%, while the 10yr yield jumped from 1.23% to 1.30%.
Commodities, Brent crude oil futures fell 0.9% to $71, copper was unchanged, and gold fell 2.3%. Iron ore remained at $169 – a four-month low.
Overnight Currency Range
Currency Low High
AUD/USD 0.7347 0.7406
EUR/USD 1.1754 1.1834
GBP/USD 1.3862 1.3932
USD/JPY 109.71 110.36
NZD/USD 0.7003 0.7056
USD/CAD 1.2495 1.2581
USD/CNH 6.4608 6.4840
AUD/JPY 80.98 81.39
AUD/NZD 1.0474 1.0501
AUD Thoughts
AUD/USD kick-starts the trading week around Friday close of 0.7355, keeping the 15-pip range at the lower end after declining the most in a week. The Aussie pair slumped the previous day after the US dollar cheered strong employment numbers. It’s worth noting that the covid woes and stimulus chatters exert additional downside pressure on the quote ahead of today’s China inflation data.
The strong jobs report rejected the market fears that the Delta covid variant gradually tames the economic recovery. The optimism favoured the US dollar the most as the policymakers are also on the table to unveil a multi-billion dollar worth of infrastructure spending.
In addition to the strong employment numbers and stimulus talks, virus woe also underpins the greenback’s safe-haven demand. As per the latest coronavirus numbers from Australia, the total daily infections jumped to the fresh high since mid-August 2020 with 363 cases for Friday, before easing to 292 numbers for Saturday. On the other hand, New daily coronavirus cases in the United States have hit a six-month high, with the seven-day average reaching nearly 95,000. That rate is five times higher than it was less than a month ago.
Also weighing on the AUD/USD prices could be the Reserve Bank of Australia’s (RBA) policymakers’ readiness to extend easy money policies and push back the rate hikes at least until 2024, per the latest policy meeting minutes and quarterly statement. Amid these plays, the US 10-year Treasury yields jumped the most in five months and offered an extra strength to the US dollar whereas equities were mixed, mildly bid, amid fears of tapering. Further, gold prices dropped around $35.00 and became another catalyst for the AUD/USD weakness.
Looking forward, China inflation data for July is likely to ease YoY but the headline Consumer Price Index (CPI) data for MoM could reverse -0.4% prior with +0.2% figures. That said, the Producer Price Index (PPI) may remain unchanged at 8.8% YoY whereas the CPI is expected to ease from 1.1% to 0.8% on YoY.
Failures to cross 0.7415-20 monthly horizontal resistance area direct AUD/USD prices towards the yearly low surrounding 0.7290. However, an ascending support line from July 21, around 0.7350, restricts immediate declines of the pair.
Event Risk Data Today
China: Softer food and agricultural prices are expected to drive a slowing of the CPI to 0.8% in July. Meanwhile, the July PPI should remain around 8.6%yr given the strength we have seen in coal and steel input prices. Following this, July new loans are expected to show a seasonal dip to 1200.0bn, and M2 money supply growth should edge up to 8.7%yr.
Euro Area: Reopening optimism may be curtailed by the spread of the Delta variant in August Sentix investor confidence.
US: The market is looking for JOLTS job openings to rise to 9270k in June; widespread reports of labour shortages should keep vacancies elevated in the near-term. The FOMC’s Bostic and Barkin will speak.