- Data on employment in Australia were observed as well as minutes from the FOMC.
- Inflation remains a concern supporting rising yields and the US dollar.
AUD / USD finished flat on Friday but had traveled within a range of 0.7288 to 0.7338 in markets more concerned about lingering inflation risks. This in turn pushes US bond yields higher, subsequently supporting the greenback despite a dismal impression from Nonfarm Payrolls on Friday.
The greenback was largely unaffected by the disappointing jobs report on Friday. Investors don’t expect the lackluster numbers to prevent the Federal Reserve from starting to cut back on asset purchases as early as November. The Labor Department said in its employment report on Friday that non-farm payrolls increased by 194,000 jobs last month. Economists polled by Reuters predicted an increase of 500,000 jobs.
To taper or not to taper?
While the overall figure was poor, analysts at ANZ Bank noted that the details were better. Average job growth this year should be enough to keep the Fed’s cut announcement on track for next month. However, there is no doubt that the data for the last two months shows a marked slowdown. ”
Analysts also pointed to the minutes of this Wednesday’s September FOMC meeting to be released, “ which will shed more light on the debate and the strategy of tapering, i.e. its speed and its duration. We would need a significant pullback from Fed stakeholders next week if the forecast for a November cut were to change. The FOMC blackout period before the FOMC November 2-3 meeting begins on October 21. ”
The U.S. dollar stronger for longer
Higher US rates help the dollar. The 2-year yield is trading at 0.32%, the highest since March 2020, while the 10-year yield is trading at 1.60%, the highest since June 4. more than two years, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the net long dollar position was $ 22.89 billion in the week ended October 5, up from $ 16.37 billion the week before. The positioning in the US dollar has been net long for 12 consecutive weeks after being net short for 16 months, ” Reuters reported.
Looking ahead, fears that inflation will climb even higher, and also become more entrenched than expected, are unlikely to abate this week. We will have the figures from the Consumer Price Index in the United States which should show a further increase in both headline rates (5.4%) and base rates (4.1%).
Australian events this week
A greater sense of caution is creeping into the global investment community, with bond yields continuing to rise, inflation expectations rising and monetary tightening in various forms becoming more prevalent. However, in Australia the housing and employment sector is of great importance to the Reserve Bank of Australia.
The RBA has long insisted it would rely on macro-prudential measures to cool the housing market rather than the rather brutal tool of rate hikes. At this week’s meeting, the RBA affirmed its commitment to keeping rates stable until at least 2024. That being said, this week’s employment data will be closely watched.
“Another month of strict lockdown in NSW and VIC is expected to result in fewer jobs,” TD Securities analysts said.
We are more bearish as companies are likely less positive about hiring based on the NAB survey in August. Workers can leave the labor market due to extended shutdowns, reducing the partial rate to 64.5%. The significant job losses are expected to outweigh the effect of the falling unemployment rate, bringing the unemployment rate to 5.0%. ”