The Australian Dollar collapsed on Friday after blistering US non-farm payrolls (NFP) data lifted the US Dollar.
The statistics revealed a US labour force that is running hot, and the market was forced to recalibrate expectations for the peak in the Federal Reserve’s rate hike cycle.
517k jobs were added in January according to the US Bureau of Labour Statistics, way above the 188k anticipated and last month’s read of 223k was also revised up to 260k. This put the unemployment rate at 3.4%, below the 3.6% forecast and 3.5% previously.
With the Fed now seen to be tightening further than previously thought, equity markets and risk assets, in general, are under pressure to start the week.
AUD/USD is in the thick of the melee along with many of the commodities that Australia export. Namely gold, copper and iron ore. The rolling over is apparent in the chart below when the greenback launched highe
With the Fed now poised to take rates higher, the focus will be on Fed Chair Jerome Powell when he speaks on Tuesday.
Last week at the post-Federal Open Market Committee (FOMC) meeting press conference, the market interpreted his remarks as less hawkish than he has been previously.
In light of the NFP data, his commentary will be closely scrutinised for clues on how far rates need to be boosted to rein in inflation.
Before he speaks, the RBA will have made their decision on the cash rate. Futures are pricing a 25 basis point hike. Similar to the Fed, the focus will turn to Governor Philip Lowe and his remarks post-decision.
Australian CPI is an uncomfortable 7.8% year-on-year to the end of 2022, well above the mandated target range of 2-3%. They previously said that they expected inflation to hit 8% by the end of 2023.
The re-acceleration of price pressures into the end of last year will not sit well with the board and it might be possible that they will need to turn more hawkish. Should this unfold, it could have implications for the Aussie Dollar.
CHART – AUD/USD, COPPER, GOLD, IRON ORE (SGX), DXY (USD) INDEX