Bell FX Currency Outlook: The Australian dollar is trading higher, rebounding following several days of weakness
Australia: A moderately weaker US Dollar helped drive the AUD back towards 1.0450 after yesterday's sell-off on news that rating agency S&P commented Australia was vulnerable to "slowdown risk".
The high Australian dollar's role in dampening inflation may be waning, and while softer labour market may act to keep inflation pressures contained, improvements in productivity will also be required to keep price pressures in check.
This move was eclipsed, however, by greater rallies in the EUR, GBP and CAD against the USD. The markets continued to digest the dovish tone from yesterday's FOMC meeting and the reinforcing and surprisingly weaker-than- expected US Q4 GDP data.
Another way of looking at this is the gain is likely a correction after recent selloffs that saw the AUD fall as low below 1.0400 yesterday.
We expect a pretty quiet session prior to the release of US non-farm payrolls. Today's release of Chinese manufacturing figures, which are expected to show a continued resurgence in the key sector, may boost the AUD today. On the downside it is hard to see a repeat of yesterday's dip back below 1.0400.
Majors: Overnight US data was mixed. The January Chicago PMI outstripped market expectations, rising to 55.6. The details of the survey were encouraging with employment, new orders and production all sharply higher.
Initial jobless claims rose by more than expected last week to 368K from 330K last week. The volatility of the claims data in recent weeks is likely to reflect seasonal adjustment challenges at this time of year.
The EUR touched a fresh high as German unemployment moderately surprised to the downside. Evidence that the German economy is pulling out of its Q4 dip continued to build.
Unemployment fell a surprising 16K in January and the unemployment rate declined to 6.8% from 6.9% in December. There were also reports that the German Finance Ministry is now expecting Q1 GDP to rise 0.2% and accelerate from Q2 onwards.
As a result, the market largely dismissed the sharper-than-expected fall in December retail sales. The NZD was well supported overnight following the RBNZ's neutral-to-less-dovish post-meeting statement.
Structural supply is also weighing on AUD/NZD as global portfolio managers continue to unwind precautionary positions in core and quasi-core currencies.
As stated, US non-farm payrolls are the big release tonight. After the 155K gain in December, markets are looking for a 165K increase in January, leaving the unemployment rate at 7.8%, so still well above the FOMC's new 'target' of 6.5%.
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