Risk aversion, dollar strength, and a less-hawkish-than-expected RBA statement weighed on the Aussie for most of the week. Will this week’s events provide some relief?
Labour market numbers
On Thursday (late Wednesday in the U.S.) at 12:30 am GMT we’ll see Australia’s employment numbers for the month of January. BFD, since the Reserve Bank of Australia (RBA) has already shared its concerns over weak wage growth.
Market players are expecting the unemployment rate to remain at 5.5%, but the net addition of new jobs is expected to fall further from 34,700 to 15,200.
Much like last month, traders will likely pay closer attention to the components of the report. Look out for the balance between part-time and full-time positions.
If part-time jobs continue to eclipse full-time employment, then the report will support the RBA’s stance against raising its rates anytime soon.
RBA Gov. Lowe’s speech
The RBA head honcho has already shared his two cents last week (see recap below), but he might use his speech due on Thursday at 10:30 pm GMT to repeat the central bank’s cautious stance on raising interest rates.
Overall risk appetite
We’ve seen last week how overall risk sentiment could affect high-yielding comdolls like the Aussie and Kiwi. If investors continue to take profits from their higher-yielding bets and gold prices continue to bow down to the Greenback, then we might see an extended selloff for the Aussie.
Last Week’s Price Review
As of 7:00 am GMT, the Aussie was on course to finishing the week as the worst-performing currency, which is a repeat performance of last week and means that the Aussie is presently in a losing streak.
And as you can see in the overlay of AUD pairs and gold (black line) above, gold slumped this week because of higher Fed rate hike expectations and the relatively stronger U.S. dollar, market analysts say.
And as usual, it’s very likely that the Aussie was taking directional cues from the slide in gold prices.
However, the Aussie did decouple from gold prices during Monday’s U.S. session and the whole day of Tuesday, as well as on Thursday.
So, what happened then, you ask?
Well, last week’s stock market sell-off resumed on Monday, that’s what. And all that risk aversion likely dampened demand for the higher-yielding Aussie.
The Aussie also found more sellers on Tuesday (even as gold climbed higher) after Australia released its disappointing retail sales report ( -0.5% vs. -0.2% expected, +1.3% previous) and trade data (-$1.36B vs. +$0.25B expected, +$0.04B previous).
Other than risk sentiment and poor data, it’s also possible that Aussie bears were opening preemptive positions ahead of Tuesday’s RBA Statement.
The possibility that Aussie bears were opening preemptive bets is supported by the Aussie’s modest bearish reaction to the RBA statement, as well as the Aussie’s subsequent broad-based recovery, even though gold was sliding at the time, risk aversion prevailed, and there were no direct catalysts for the recovery, which implies that the Aussie’s rise may have been due to short-covering.
As for some deets on the RBA Statement, well, the RBA decided to keep the Cash Rate steady at 1.50% as expected.
And while the RBA’s outlook on the economy was upbeat overall, the RBA also gave the following downbeat assessments:
“[W]age growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time”
“One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.”
“Inflation is low, with both CPI and underlying inflation running a little below 2 per cent. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing.”
In short, the RBA was hinting that a rate hike is not coming anytime soon.
And this hint was transmuted into a blatant statement on Thursday when RBA Guv’nah Lowe flat out said the following in his speech:
“[T]he Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.”
On a more upbeat note, Lowe did say that the RBA has a hiking bias when he said that:
“So, given recent developments in Australia and overseas, it is likely that the next move in interest rates in Australia will be up, not down.”
Traders were apparently paying more attention to his dovish comment that rate hikes aren’t coming soon, though, since the Aussie got weighed down by sellers, even though gold prices were recovering at the time.
Although it’s also possible that Aussie bears won because Thursday was another day of intense risk aversion.