Welcome to the Week of Nonfarm Payroll
RBA is likely to cut rate tomorrow, short AUD/USD at any rally.
Australian dollar is likely to come under pressure from a rate cut
This week will be a busy week for global FX traders. The Reserve Bank of Australia’s governor, Philip Lowe, will decide whether the central bank will cut rates for the third time this year. Their US counterpart will also be releasing its jobs report this week.
Governor Lowe gave confusing messages about the policy direction in the remarks he made earlier this week. He took markets by surprise when he said that the Australian economy is at a “gentle turning point.” His unexpected optimism suggested a rate cut at the next meeting on Tuesday may not be a done deal. However, he also indicated it was a priority to prevent the exchange rate from appreciating. Hence, investors still think that the RBA will lower rates in October for the third time this year and is pricing in a 77% probability of a 25-basis-points cut.
The Australian dollar is likely to come under pressure from a rate cut, though the bigger focus will be on whether the RBA will signal further reductions in the cash rate. A hawkish cut could see the Aussie dollar spike higher.
On Friday, the US Bureau of Labour Statistics will be releasing its much-anticipated report on how the jobs market fared during September. The data will give investors and policymakers a clear view on whether the economy remains in good health or if is it starting to succumb to the same pressures that had weighed on global growth as the world’s two superpowers locked horns on trade.
Last month’s report showed that such fears are not completely unfounded. In August, US jobs growth slowed to its weakest level in three months. Nonfarm payrolls rose by a mere 130,000, well below Wall Street’s expectations of 158,000. The report also revised down the gains posted in June and July by 20,000. Even though the US unemployment rate remains near a 50-year low and wages grew at a healthy clip last month, many traders see the market at a crossroads. In the eleventh year of expansion, US labour market is continuing to expand, albeit at a slower pace. Some indicators still show employment activity to be healthy and dynamic, while others are beginning to flash signs that the labour market is in a more fragile state, such as the ISM PMI released earlier this month.
AUD/USD – Slightly bearish
This pair may drop towards 0.6735 this week after RBA cuts rate tomorrow.
USD/JPY – Slightly bearish
This pair may drop towards 107.35 amid weak risk sentiment.
XAU/USD (Gold) – Slightly bullish.
We expect price to rise towards 1511 this week.
U30USD (Dow) – Slightly bearish.
Index may fall towards 26629 this week.
Fullerton Markets Research Team
Your Committed Trading Partner