It was a week where the Aussie was a little skatty, buffeted by the competing forces of a weak USD and the looming uptick in risk aversion. As the chart below shows over the week there was really much ado about nothing as it traded a very narrow range in the context of the past month or two.
Last night’s post Non-Farm Payrolls (NFP) captured both the sentiment for the week and the range as the right hand side of the chart shows. Coming in at just a rise of 54,000 NFP was the lowest it had been in 8 months and 100,000 below market expectations. Manufacturing payrolls were up just 5,000 and the seperate Household Survey put unemployment at 9.1%.
This is unequivocally weak data this far into the so-called recovery and speaks of a US economy that is in bad shape. Last night’s Services ISM was a little stronger but the regional Fed indices and the manufacturing ISM all have turned down sharply and the ECRI leading inddex is down for the 6th week in a row. If that isn’t enough don’t foget the 44 million Americans on what used to be called food stamps.
So its hard for the USD to be anything but weak, or at least heading/hanging around this years lows unless it is required as a safe haven in as risk aversion rises.
This chart of the USD Index speaks for itself really doesn’t it?
Which leads me to the Aussie’s bounce last night in the chart up top. When NFP was released I tweeted that I thought the numbers were rubbish and the AUD was back on its way to 1.0450. But like any good off the cuff forecast it was quickly consigned to fish wrapper status as the markets focussed on the renewed efforts for a Greek bailout.
The money is on its way according to Luxembourg’s Prime Minister Jean-Claude Juncker. And this morning EUR finished above 1.46 for the first time in around a month.
If EUR is going to retest its highs and the USD its lows then, all other things equal, the AUD should be moving higher – above 1.08 at least and probably 1.09.
But we know that all things aren’t equal. Equities had a poor week globally and the data will keep them under pressure. My analysis suggests they have further to fall over coming weeks and months and I think this will translate into a market where the Aussie underperforms as risk aversion rises gradually as I wrote yesterday on Aussie weakness.
Next week, look out for the RBA rhetoric accompanying the decision on Tuesday afternoon. That will set the tone and perceptions for the Aussie. I don’t expect a tightening but what Governor Stevens says will be interesting given the debate and outlook for the economy.
One thing I picked up yesterday in the SMH was that the new Treasury Boss Martin Parkinson gets it about the rest of the economy even if all the headlines are of his comments on the rivers of gold flowing from mining. The SMH quoted him as saying
Mining is 8 per cent of gross domestic product … but there’s a very important 92 per cent of GDP which is out there which for some reason we have stopped talking about.
He’s on the RBA Board now don’t forget.
I firmly believe in this environment, even with a really weak USD, that the 1.10 region will be hard for Aussie to break.