The Aussie Dollar has found its feet this week thanks to the US Fed’s pause and the booming Australian jobs market.
Thursday’s local employment figures painted a very rosy picture of the labour market (with 76k jobs added), which has the AUDUSD rate knocking on the door of the US$0.69 level.
The implication of the robust jobs data is that the RBA would have to stay aggressive on interest rates for longer to nullify inflation. The positive mood on global equities is also helping to support the AUD.
The greenback and US treasury yields have descended in the wake of the FOMC pause on interest rates.
Even though the Fed has signalled that there is more tightening to come, there is a growing realisation that the FOMC is closer to the peak setting than other central banks around the globe, and this prospect of tightening yield differentials is starting to take its toll on the US Dollar.
The European Central Bank (ECB) rate hike and hawkish outlook spurred the euro higher against the USD. The ECB looks to have more room to move to the upside on rates compared to the FOMC, which bodes well for potentially more appreciation to come in the EURUSD rate.
Meanwhile, the Bank of Japan (BOJ) confirmed a continuance of the ‘steady as she goes’ approach to ultra loose monetary policy. The USD has had a tough 24 hours, however today’s BOJ announcement did allow a move higher against the yen.
The retreat in US yields and in turn the US Dollar has provided some relief to the gold price. The precious metal had been plunging, particularly once the US$1940 resistance level gave way.
However as has been a theme in recent months, dips in the gold price attracted buyers which prevented steeper declines. Looking ahead, gold will remain highly reactionary to US data points as investors assess whether the economic indicators do indeed warrant a further 50bp of tightening from the Fed. Movements in the US yield curve will continue to be the best indicator of how the gold price is faring on any given day.
Oil snaps back
The oil price snapped back thanks to some USD depreciation and expectations of further Chinese stimulus. The WTI contract reclaimed the US$70 level after having spent time this week trading on the US$67 handle. A rebound in risk appetite on equity markets also translated to gains in the oil price.
Now that markets have had more time to absorb the FOMC meeting, it seems traders are happy to enjoy this moment of a pause rather than dwell on the prospect of two more rate hikes awaiting down the road. With regards to oil, despite the recovery efforts this week there still appear to be more headwinds than tailwinds in the short term given the patchy demand outlook. The recent uptick is partially predicated on hopes of further Chinese stimulus and growth – both of which are yet to materialise.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
