Aussie dollar surge hits wall ahead of US jobs data

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This was published 8 years ago

Aussie dollar surge hits wall ahead of US jobs data

By Vanessa Desloires
Updated

An impressive rally that had pushed the Australian dollar to a one-month high ran out of steam during Friday's session, after soft local retail data sparked some caution ahead of a closely watched US jobs report.

The Aussie jumped as high as US72.43¢ on Thursday night, buoyed by a second day of selling in the US dollar currency on fading chances of further interest rates rises by the US Federal Reserve.

The greenback rose against most of its 16 major peers, as traders judged its recent weakness as overdone even as sales at US retailers fell 0.3 per cent in March.

The greenback rose against most of its 16 major peers, as traders judged its recent weakness as overdone even as sales at US retailers fell 0.3 per cent in March.Credit: Phil Carrick

But in late trade on Friday, the currency had dropped to just below US72¢, after earlier falling as low US71.73¢ when December retail sales came in flat, disappointing expectations of a strong Christmas shopping period.

"(Retail data was) well below consensus, but it was largely ignored as traders continue to reprice the slope of 2016 US Federal Reserve board rate hikes," said Stephen Innes, senior trader at FX/CFD firm OANDA Australia and Asia Pacific.

The Australian dollar is benefiting from a tumbling greenback.

The Australian dollar is benefiting from a tumbling greenback.

The Fed hiked rates in December by 25 basis points, ending its zero interest rate policy in place since the global financial crisis, and has flagged that it will continue tightening monetary policy this year.

But after a series of soft economic data markets pricing suggests the Fed won't lift rates at its March meeting, and may only raise once this year, compared with the four hikes the central bank forecast in December.

"[Wednesday's] US dollar rout was caused by the tempering of rate hike expectations with NY Fed's William Dudley practically telegraphing to the market that the Fed is likely to hold off on any tightening in March given the global economic slowdown," BK Asset Management managing director of FX strategy Boris Schlossberg​ said.

The Bloomberg Dollar Index, which measures the greenback against a basket of major currencies, endured its steepest two-day fall since 2009.

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Markets were on Friday awaiting US jobs data with economists forecasting a steady unemployment rate of 5.0 per cent and 190,000 jobs created in January.

Also underpinning the local currency were upbeat comments by the Reserve Bank of Australia seeing potential improvement in the economy thanks to a strengthening labour market.

In its quarterly monetary policy statement on Friday, the central bank reiterated that any cut in interest rates would depend on jobs data and whether recent financial market turbulence pointed to a weaker global economy.

A poll of analysts by Reuters overnight found they overwhelmingly expect the Australian dollar to fall, but saw the currency at US69¢ in 12 months' time.

The dollar advanced against most major currencies with the exception of the euro and the Japanese yen. The Aussie climbed slightly against the British pound, buying 49.3 pence after the Bank of England retreated from its tightening stance and cut its inflation forecast.

Governor Mark Carney said inflation would average just 0.8 per cent this year, noting "the UK cannot help but be affected by an unforgiving global environment and sustained financial market turbulence".

The BoE kept rates on hold in a unanimous decision by the BoE Monetary Policy Committee, but Commonwealth Bank of Australia economist Peter Dragicevich​ said the underlying tone was less easing-biased than the market interpreted.

"The BoE thinks that the remaining slack in the UK economy will 'probably' be eliminated by the end of 2016. And the central message from the MPC continues to be that the next policy change will 'more likely than not' be a rate rise," he said.

with Jens Meyer

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