FX Weekly Update 18 Sep 2020

The Week in Review

The AUDUSD oscillated in a 100pip range this week, between a 0.7345 high and 0.7254 low in a week full of macro data releases. Most notably, the Fed met early Thursday morning and Australian labour market data was released around noon the same day.

AUDUSD Weekly Movements

Australian Labour Market

Australian labour market data for August was released yesterday morning, massively beating expectations and immediately driving the AUD higher. Job growth was expected to be negative at -35k, but was actually a gain of 111k. Unfortunately, the majority of these job gains were part time (75k) not fulltime (36k), but a positive result nonetheless. The unemployment rate also dropped down to 6.8% from 7.5% instead of ticking higher to the expected 7.7%. The results look very encouraging for the recovery when one examines the regional breakdown of job gains. Excluding Victoria (where given the present lockdown situation no one would expect a strongly recovering labour market) job growth across the country was +153k, with two-thirds of COVID-related job losses recovered. The AUD jumped 0.35% to 0.7311 after the data, but quickly retraced down hitting a new low for the day at 0.7264 amidst a broad risk off sentiment in the Asian session.

Federal Reserve Meeting

The FOMC met early Thursday morning and did not reveal any major surprises to the market. As expected they reiterated their new regime of aiming to achieve an inflation rate that averages 2% over the long term, as opposed to a firm 2% target (which would imply they would consider restrictive monetary policy to suppress it should it exceed 2%). They released a new dot plot of their expectations, with 13 of 17 FOMC members forecasting rates to be on hold through to 2023.

Fed Dot Plot – each member’s expected Fed Funds Rate at each year end

RBA Monetary Policy Minutes

On Tuesday morning the RBA released their September Monetary Policy Meeting Minutes, which included further commentary around their decision to extend the Term Funding Facility and their future outlook for supportive monetary policy measures. The TFF has been working as the RBA intended, with banks using the funds to support low-rate business lending in an environment that would usually involve credit contraction. They noted that the recovery Australia would go through would be uneven, citing Victoria’s continued lockdown as a contributing factor. Comments made in the initial monetary policy statement in early September saying that the RBA “continues to consider how further monetary measures could support the recovery” had fuelled some speculation that the RBA may have discussed cutting the cash rate to 0.10% (or some other new form of accommodative policy), but when this did not eventuate the AUD jumped higher, from roughly 0.7275 to 0.7300.

The Week Ahead

Key events to watch for next week:

  • RBNZ Meeting – Wednesday noon
  • US Flash manufacturing PMI – Wednesday 11.45pm
  • Eurozone PMIs – Wednesday evening

References

ABS, 2020. 6202.0 – Labour Force, Australia, Aug 2020. [online] Abs.gov.au. Available at: <https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6202.0Main%20Features2Aug%202020> [Accessed 18 September 2020].

Condon, C., 2020. Fed Sees Rates Near Zero Through 2023 To Boost Jobs, Prices. [online] Bloomberg.com. Available at: <https://www.bloomberg.com/news/articles/2020-09-16/fed-signals-rates-will-stay-near-zero-for-at-least-three-years?sref=92Is2d7a> [Accessed 18 September 2020].

Lowe, P., 2020. 1 September 2020 | Minutes Of The Monetary Policy Meeting Of The Board. [online] Reserve Bank of Australia. Available at: <https://www.rba.gov.au/monetary-policy/rba-board-minutes/2020/2020-09-01.html> [Accessed 18 September 2020].