- AUD/USD continues sideways trading around 20-day SMA.
- Fed Minutes on Wednesday follow RBA’s turn.
- May’s Retail Sales from Australia and US ADP figures are also due on Wednesday.
- Powell showed confidence in inflation coming back down to 2% sooner than expected.
Tuesday’s session witnessed the Australian Dollar (AUD) clearing losses against the US Dollar following the release of the hawkish Reserve Bank of Australia (RBA) minutes and the US JOLTs figures from May. For the USD, the confidence of Jerome Powell on inflation coming back down sooner on the prospects of a cooling labor market weakened the Greenback.
The Australian economy exhibits some signs of weakness. Nevertheless, the persistently high inflation is prompting the RBA to delay potential rate cuts. The RBA is set to be among the last G10 countries’ central banks to start reducing rates, which may limit the downside of the Aussie.
Daily digest market movers: Aussie clears losses as market assesses latest RBA minutes
- RBA Minutes from June meeting offered more details on bank’s hold stance. One of the main reasons that the RBA members saw a stronger case to leave the policy rate unchanged rather than a hike was because of the “uncertainty around the data for consumption and clear evidence that many households were experiencing financial stress.”
- On Wednesday, sales figures for May in Australia will be reported. The expectation is for a 0.3% MoM rise compared with 0.1% in April and its outcome will be key.
- Markets predict a 25% chance of a 25-basis-point rate increase at the next August 6 meeting from the RBA.
- In the US, JOLT Job Openings came in above 8 million in May.
- In addition, Jerome Powell was on the wires and admitted some progress on inflation and that the rate may reach 2% the next year.
- As for now, the market sees 70% odds of a Federal Reserve rate cut in September but will heavily depend on the upcoming data.
Technical analysis: AUD/USD sways above the 20-day SMA
From a technical perspective, the AUD/USD has continued a trend of sideways trading since mid-May. The 20-day Simple Moving Average (SMA) at 0.6640 provides strong support, with further support found at levels 0.6620 and 0.6600. The critical resistance levels are currently set at 0.6660, 0.6690 and 0.6700. This supports a continuation of the established 0.6600-0.6700 range.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.