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AUD well supported as USD Weakens on Non-Farm Payroll Data

Published June 10, 2019

Author: Steve Oram

Trading in the AUD should be subdued today with a holiday in most of Australia, excluding QLD & WA. Last weeks cut by the RBA was expected and priced in by markets and had little impact on the Australian Dollar.  The big question facing markets is whether another cut is on the cards.  Labour data is a key driver of this decision making process and Employment numbers released on Thursday will be very closely watched.

The Aussie Dollar begins the week slightly higher, having flirted with the big figure of 0.7000 on Friday night as US Dollar weakness boosted the local currency.  Worse than expected non-farm payroll numbers released on Friday night along with growing concerns the US Fed may look to loosen monetary conditions and cut interest rates both weighed on the USD.

US businesses added the fewest workers in three months as wage gains significantly cooled in today’s jobs report. This resulted in an immediate drop in the greenback as this signals broader economic weakness and likely boosting calls for a Federal Reserve interest-rate cut. Payrolls rose 75,000 after a revision from a 224,000 advance the prior month, according to a Labor Department data.

People’s Bank of China Governor Yi Gang said his country has ample monetary and fiscal policy space to make modifications to the Chinese economy should the trade war worsen. He continued by stating that his meeting this weekend with US Treasury Secretary Mnuchin would be productive. The offshore yuan fell the most in three weeks off of the governor’s comments.

Negotiations between the US and Mexico are set to continue into a third day in a bid to reach an agreement that would stop the imposition of 5% tariffs on American imports from its southern neighbor on Monday. Mexican Foreign Minister Marcelo Ebrard confirmed that his government has offered to send about 6,000 national guard troops to Mexico’s southern border with Guatemala to help stem migration.

The Euro has made good ground vs USD over recent weeks and this may continue given recent central bank announcements.  While the US Fed is making noises around interest rate cuts, the ECB is taking a different path, with ECB President Draghi saying the bank planned to keep rates on hold through the first half of 2020.  However he did also say they were ready to act if economic conditions deteriorate.  The relatively hawkish stance from the ECB is in contrast to other major central banks and could keep the EUR well supported.