AUD/USD: Sold on US NFP, Aus Nov building approvals next - Westpac

Sean Callow, FX Strategist at Westpac, provides a summary from Friday's price action in the Aussie, noting that the rate saw downside pressure following the US employment report, which sa a solid jump in wages growth, resulting in a decine down from 0.7350 to around 0.7290. In today's Australian calendar, Sean highights Nov building approvals data, to be followed tomorrow by Nov retail sales.

Key Quotes

US non-farm payrolls for Dec came in close to expectations with the assistance of revisions. Payrolls grew +156k (consensus at +175k), the 19k miss offset by +19k in upward revisions to the prior 2 months. That said, the underlying pace of job creation continues to cool, the 12mth average slipping to 179k - its slowest pace in almost 3 years. On the plus side, average hourly earnings grew more than expected at +0.4%, taking the annual rate to 2.9% - its strongest pace during this cycle. The unemployment rate rose as was widely tipped, from 4.6% to 4.7%, partially correcting the 0.2ppt fall last month.

The US dollar outperformed all major currencies. EUR/USD fell from 1.0605 to 1.0530, most of this in response to the employment report. USD/JPY rose from 116 to a high of 117.18, the yen the worst performer on the day, sensitive as usual to US yields (see below). AUD/USD fell from a NY high of 0.7355 to around 0.7290/0.7300 by the weekend. NZD/USD fell from about 0.7030 to 0.6960/65. The steepness of this fall meant AUD/NZD rose from 1.0430 late Sydney trade Friday to just short of 1.05 this morning.

US 10yr treasury yields bounced off a six-week low of 2.33% to 2.42% following the payrolls data and optimistic commentary from various Federal Reserve members. 2yr yields rose from 1.15% to 1.21%. Money markets continued to price in a 100% chance of a Fed rate hike by June and another by November (previously December).

Event risk: Today we see Australia Nov building approvals data, with a bounce of about 5% expected after the -13% reading in October. This series is historically very volatile given the “lumpiness” of approvals of apartment blocks. Tomorrow we see Australia Nov retail sales data.