The Australian dollar got a boost from a strong employment data yesterday and is now sitting on the .7998 level this morning.
“There is nothing like a super strong employment report to move a currency and get forex traders lifting the offers,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
And that is exactly what we saw in the Australian dollar yesterday with the much stronger than expected print for August employment showing a 54,200 jump in jobs during the month.
“The Aussie dollar moved from 0.7973 to 0.8013 in the blink of an eye on the back of the strong jobs data,” McKenna added.
Global central banks signal possible end to stimulus
At the same time, currency markets around the globe are reacting to signals from central banks that they will be removing emergency stimulus. For instance, the British Pound and Euro pair moved in line with the statement of the Bank of England statement last night.
“If this (central banks removing stimulus) continues then forex traders may start focusing on a higher interest rate from the Reserve Bank of Australia (RBA),” McKenna said.
According to McKenna, the Australian jobs data has been strong this year.
At the same time he pointed out that RBA Governor Lowe suggested in September this strength is already causing wages to rise in pockets and that the “Reserve Bank’s central scenario is that, over time, this will become a more general story”.
Higher interest rates more possible in 2018
“So the chances of a rate hike in 2018 have risen materially,” McKenna said.
Naturally, that assumes this strength in the employment market continues – as the NAB business survey suggests it might.
“And if Governor Lowe and his colleagues are right about growth, wages, and by extension inflation, then with a solid global growth environment, the conversation will be changing in the months ahead toward the when of RBA rate hikes,” McKenna added.
“That will naturally support the Aussie dollar in the medium term,” he said.
With a slightly weaker US dollar, the Aussie dollar is sitting around 80 cents.
In the meantime, North Korea has launched another missile over Japan and although there has yet to be a response from the US financial markets are taking it in their stride.
“So on balance, while the Aussie is below the resistance at 0.8050/60 it looks like lower levels still beckon to test the true level of support. Last night low at 0.7950 is first support but 0.7850 is the target.
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