Rising unemployment and risk-off tone force AUD lower

OFX Daily Market News

Posted by OFX

AUD – Australian Dollar

The Australian dollar drifted lower through trade on Thursday following a larger than anticipated up tick in unemployment and a consolidated shift in risk demand. The Australian dollar fell to 0.6843 after labour market data showed the unemployment rate jumped to 7.1%, as almost 230,000 jobs were lost in May, a print well beyond conservative estimates. Alarmingly the upturn in unemployment came despite a reduction in the participation rate. With many Australian’s giving up the search for re-employment, unemployment statistics fail to capture the true scale of labour market turmoil. Having fallen below 63% the dip in the participation rate masks a much higher rate of unemployment. Had active participation in the workforce remained at January’s high (66.1%) then unemployment would sit nearer 11.5%. With labour market conditions continuing to worsen, yesterday’s print offers a stark reminder of the economic costs sparked by the COVID-19 pandemic. Having touched intraday lows, the AUD found some support in the promise of easing Chinese Monetary policy. The PBOC announced a 20-basis point cut to its reverse repo rate in a bid to stimulate the flow of credit and drive the Chinese recovery. The AUD crept back toward 0.69 before a shift in risk demand prompted another downward correction and push to safe haven assets. With the number of new infections across the US continuing to rise at an alarming rate and Beijing still battling its own outbreak, there is real concern a second wave of infections will derail any economic rebound through the short/medium term. Having slipped back below 0.6850, the AUD opens this morning buying 0.6847 US cents.

Key Movers

A modest risk-off mood prompted a broader push to safe haven currencies overnight, propping up the USD, JPY and CHF. Concerns surrounding an alarming uptick in new infections across the US and a second outbreak in Beijing have prompted investors to reassess expectations surrounding the pace and path of economic recovery. Texas, Arizona and North Carolina all reported a record number of coronavirus related hospitalisations on Wednesday as case numbers across the country continue to rise amid lifting social distancing restrictions. The US dollar edged higher as growth correlated currencies fell.

The Great British pound was the day’s big loser, falling over 1% in the wake of the Bank of England’s policy announcement. The MPC elected to leave the cash rate at 0.1% while confirming an uptick of 100billion pounds to its current QE program. The increase takes the total purchase facility to 745bn and means the program will now run into the end of the year. While the move was largely expected, many analysts were pushing for a larger increase in the asset purchase program. With normal drivers flipped on their head and increased monetary easing/stimulus driving currency gains, the disappointment forced sterling below 1.2450 to intraday lows at 1.2406.

Attentions today remain squarely affixed to the broader risk narrative, with the risk on – risk off environment creating ongoing short term volatility.

Expected Ranges

AUD/USD: 0.6780 – 0.6960 ▼

AUD/EUR: 0.6050 – 0.6130 ▼

GBP/AUD: 1.7920 – 1.8320 ▼

AUD/NZD: 1.0620 -1.0720 ▼

AUD/CAD: 0.9280 – 0.9350 ▼

Posted by OFX

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