USD weaker on jobs data and China reopening
A partial reopening of the Chinese economy and stronger-than-expected US employment data reduced the safe-haven demand for the US dollar on Friday. So, we saw the US dollar weaken across the board because many market commentators are starting to believe the US Federal Reserve might be able to engineer a so-called, soft landing for the US economy. 263,000 jobs were created in the US last month. That kept the unemployment rate at 3.7% but the number was greater than expected. the real surprise came in a monthly rise of 0.6% in average hourly earnings, lifting the annual rate to 5.1% which is a full half a percentage point above the market forecasts. So the expectation is that the Federal Reserve will continue to raise interest rates for the time being but that they will slow the pace of those hikes over time. it should be said though, that investors were also encouraged by the partial relaxation of China’s lockdown rules. the combination of these positive signs for the global economy allowed the US dollar to slip back to $1.23 against the pound and $1.0535 against the euro, both are at the highest rates since June. Great news for GBP sellers. Other than a smattering of purchasing managers’ indices, this is a quiet week for US data. So, the USD is likely to tread water but retain a slightly negative bias unless any of the Federal Reserve commentators throw a hefty spanner in the works.
AUD steady ahead of the interest rate hike and GDP data
The Australian dollar is slightly weaker this morning at the start of a week which will undoubtedly be a volatile one. The partial reopening of the Chinese economy is a positive thing for the Australian dollar as China is Australia’s number one export market. Overnight tonight the Reserve Bank of Australia will make an interest rate announcement and the general perception is that they will raise their base rate from its current 2.85% to 3.1% as they try to balance the dichotomy between controlling inflation without stifling growth. Speaking of which, we will see Australia’s economic growth data for the third quarter of the year in the early hours of Wednesday morning. The markets are expecting a slowdown from the previous 0.9% to a level of 0.7%. so any variation from that will get the Aussie dollar traders excited. As of this morning, the GBPAUD rate is around AUD 1.8050. This pair hasn’t been above AUD 1.81 since early March 2022. A break above that level would confirm the reversal we saw in September. From a technical standpoint, AUD 1.8180 is the 62% Fibonacci retracement of that drop from January’s high to September’s low. So that is the key level for now. If GBPAUD stays below that level, any thoughts of a significant rise can be forgotten.
Canadian Dollar slips after uninspiring jobs data
Friday’s Canadian employment report made for positive reading but not as positive as the markets had been hoping. Just over 10,000 jobs were added in Canada during November then which did bring the unemployment rate down to 5.1% but the markets had been spoilt by 108,000 jobs being created in October. So, this data looked quite limp by comparison. The Canadian dollar weakened on this news but it is also influenced by the value of the US dollar, due to the volume of exports of Canada’s raw materials that head South of the border and the fact that these raw materials are generally priced in U.S. dollars. The GBPCAD rate is trading around CAD 1.65, some of the highest levels we have seen in this pair since March 2022. The jobs data will certainly influence the Bank of Canada when they make their interest rate decision on Wednesday. The markets are currently expecting a 50 basis point hike from the BOC to bring the base rate up to 4.25% but slowing jobs growth may add a hint of caution to the statement issued by the BOC. If the mood is turning at all dovish, we ought to expect further Canadian dollar weakness.