- The Aud/USD gives most of its profits after non -agricultural payroll (NFP) but remains modestly higher in the day, even on the way to register its greatest weekly loss since March.
- The US NFP report showed only 73,000 jobs added in July, well below the expected 110,000.
- The production price index (IPP) of the second trimester of Australia was slowed to 3.4% year -on -year and 0.7% intertrmetral, indicating a relaxation of input cost pressures.
The Australian dollar (AUD) is still under pressure against the US dollar (USD) on Friday, returning most of its previous profits despite the general weakness of the dollar after disappointing non -agricultural payroll data (NFP). The AUD/USD initially rose almost 70 pips after the US employment data surprised down, but the impulse faded quickly as the markets changed their approach to the growing expectations of a cut of interest rates by the Bank of the Reserve of Australia (RBA) at its next meeting of August 12. The moderate perspective keeps Aussie near minimums of several weeks.
At the time of writing, the Aud/USD is going down, around 0.6446 during negotiation hours in America, although 0.30% in the day still remains modestly. The pair is still on its way to registering its greatest weekly decline since March. Meanwhile, the US dollar index (DXY), which tracks the dollar against a basket of six main currencies, has been withdrawn from the maximum of two months of 100.26 previously marked on Friday and is currently negotiated about 99.13, since the expectations of a rate cut in September increase after the weakest data of the US labor market.
The July NFP report showed that the US economy added only 73,000 jobs, well below the 110,000 expected, marking the weakest figure of the year. To add to the disappointment, the previous months were drastically reviewed, with the payrolls of May and June cut in a total of 258,000 jobs. The unemployment rate rose to 4.2%, in line with expectations, while salary growth remained stable at 0.3% monthly and 3.9% year -on -year. The data indicated a cooling of the labor market and caused a rapid revaluation of interest rates expectations. According to the CME Fedwatch tool, the markets now assign a 82% probability of a rate cut at the September policy meeting of the Federal Reserve, a drastic increase from 37% before the publication of the report.
The data published above Friday by the Australian Statistics Office showed that the production price index (IPP) rose 3.4% year -on -year in the second quarter, lowering 3.7% in the first quarter. In quarterly terms, the IPP increased 0.7%, decreasing from the 0.9% increase recorded in the previous quarter.
The consumer price index (CPI) data in the second quarter showed that the annual inflation was slowed to 2.1%, while the preferred measure of the RBA, the average cut, stood at 2.7%, comfortably within the target range of 2-3%of the RBA. Commenting on the publication, the vice governor of the RBA, Andrew Hauser, said that the figures were “very similar to what we had expected”, suggesting that the data is in line with the perspective of the central bank for continuous deflation. The lowest inflation figure reinforces the case for a possible rate cut at the next RBA policy meeting on August 12.
The lowest inflation figure, combined with the relaxation of production price pressures, adds to the expectations that the RBA could cut interest rates at its next policy meeting on August 12.
RBA – Frequently Questions
The Bank of the Australian Reserve (RBA) sets interest rates and manages Australia’s monetary policy. The decisions are made by a advice of governors in 11 meetings per year and in the necessary emergency meetings that are necessary. The main mandate of the RBA is to maintain price stability, which means an inflation rate of 2%-3%, but also “… contribute to the stability of currency, full employment and economic prosperity and the well-being of the Australian people.” Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian dollar (AUD) and vice versa. Other RBA tools are the quantitative relaxation and hardening of monetary policy.
Although traditionally it has always been considered that inflation is a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross -border capital controls. Moderately high inflation now tends to take the central banks to raise their interest rates, which in turn has the effect of attracting more capital of world investors who are looking for a lucrative place to keep their money. This increases the demand for the local currency, which in the case of Australia is the Australian dollar.
Macroeconomic data calibrates the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contraction economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment and surveys about consumer feeling can influence the AUD. A strong economy can encourage the Bank of the Australian Reserve to raise interest rates, also supporting the Aud.
The quantitative easing (QE) is a tool used in extreme situations in which to lower interest rates is not enough to restore credit flow in the economy. The QE is the process by which the Bank of the Australian Reserve (RBA) prints Australian dollars (AUD) in order to buy assets – normally State or business bonds – to financial institutions, thus providing them with the liquidity they need so much. The one usually translates into a weaker audience.
The quantitative hardening (QT) is the reverse of the QE. It is carried out after the QE, when economic recovery is underway and inflation begins to increase. While in the QE the Bank of the Australian Reserve (RBA) buys state and business bonds from financial institutions to provide liquidity, in QT the RBA stops buying more active and stops reinvesting the main one that expires of the bonds it already has. It would be positive (or bullish) for the Australian dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
