The Aussie dollar was weakest in the G10 last week, down -1.4%. This seems consistent with 4 straight days of declines in global equities, but Australia’s local news also continues to weigh. A busy calendar in the week ahead includes Australia’s August labour force survey and US August CPI.
Aussie struggles ahead of key jobs data
The Aussie dollar was weakest in the G10 last week, down -1.4%. This seems consistent with 4 straight days of declines in global equities, but Australia’s local news also continues to weigh. With little official data, the domestic focus was the RBA policy decision. A$ popped higher briefly to 0.7468 on the initial headlines revealing that the RBA was proceeding with its plan to slow the pace of weekly bond purchases from $5bn to $4bn. But the RBA also decided to extend its program through February 2022 rather than review it in November.
The RBA’s confidence in the Australian economy rebounding later this year was also toned down. The AUD/USD reversal to below 0.7400 later that day was mostly driven by a stronger US dollar, but of course there was little reason to buy the currency as Australia’s battle with the delta variant of Covid-19 kept Sydney and Melbourne in lockdown. Both NSW and Victoria reported 2021 highs for daily new cases.
There remains reason to be optimistic about where Australia eventually ends up in terms of vaccination coverage relative to other nations. This would be a major positive for the economy and the currency. But it is probably a story for October-November at the earliest. Near term, there are some major data hurdles for the Aussie.
The NAB Australia business confidence index was historically buoyant earlier this year but slumped from +11 in June to -8 in July. It is hard to imagine much optimism in the August survey. The Westpac-Melbourne Institute consumer sentiment survey has been somewhat more resilient than expected lately, with the key index still above 100 in August, but its downward trend has been clear since the April high.
But Australia’s main market focus will be August jobs report. Westpac expects a -150k slide in employment, with plenty of room for surprise: economists’ forecasts range from -300k to +2k. The unemployment rate should rise to 5.0% after the misleading 4.6% in July.
There is also plenty to watch offshore. Last week’s US dollar gains were probably due to haven demand as equities wobbled rather than a vote of confidence in the US economy. As the delta variant impedes the recovery of many industries, US Q3 GDP growth estimates are being marked lower. Influential New York Fed president John Williams indicated that the FOMC would take its time to ease back on stimulus. But expectations for the Fed are still fluid, so there will be keen interest in the US August inflation data as well as the first of the September regional business surveys.
On the commodity side, coal prices remain at multi-year highs but iron ore has slipped back below $130/tonne. China’s August industrial production data will be an important guidepost to future industrial commodity price trends though for now, Australia’s trade surpluses remain massive.
Event risk this week
Aust Aug NAB business confidence, RBA Governor Lowe speaks on economy, UK Jul unemployment, US Aug CPI (Tue), Aust Sep Westpac consumer sentiment, NZ Q2 balance of payments, China Aug industrial production & retail sales, UK Aug CPI, US Sep NY Fed Empire State survey (Wed), Aust Aug labour force survey, NZ Q2 GDP, US Aug retail sales (Thu), UK Aug retail sales, US Sep consumer sentiment (Fri)
