Approach of Key US ADP Labour Market Figures allows Australian Dollar to US Dollar Exchange Rate to Advance
An increase in risk appetite, as markets await the outcome of this afternoon’s US labour market figures, has provided a boost for the Australian Dollar to US Dollar (AUD/USD) exchange rate this morning.
The Australian Dollar has also received a boost from yesterday’s late-night purchasing managers’ indices (PMI’s) for December.
The CBA services PMI rose from 54 to 55.1, while the composite index climbed from 54.3 to 55.5. The performance of services index released by the Australian Industry Group (AiG) showed a gentle uptick from 51.7 to 52.0.
AUD has also seen upside pressure from the latest Caixin PMIs for China, as strong economic conditions in Australia’s biggest trading partner is clearly desirable.
The services index rose from 51.9 to 53.9 - its best score since August 2014 - instead of inching down to 51.8 in line with forecasts.
The composite index rose from 51.6 to a 12-month best of 53.0.
FOMC Meeting Minutes Provide Only Temporary Boost for US Dollar Exchange Rate despite Raised Economic Forecast
Minutes for the 13th December Federal Open Market Committee (FOMC) monetary policy meeting, released after the close of trading yesterday, gave the US Dollar only a small boost versus the Australian Dollar.
Markets were cheered to see that policymakers considered President Donald Trump’s plans for tax reform likely to have a notable impact upon economic growth - estimates for GDP in 2018 were increased from 2.1% (around the average annual growth rate since the financial crisis) to 2.5%.
The meeting minutes stated that ‘Most participants indicated that prospective changes in federal tax policy were a factor that led them to boost their projections of real GDP growth over the next couple of years’.
However, the minutes were keen to stress that policymakers remain uncertain as to the ways and extent in which tax reform will benefit the US economy.
The minutes also revealed that the split in the Federal Reserve over the issue of inflation continued, with some claiming that the recent softness in the pace of price growth is temporary, while others believe it is symptomatic of a more prolonged issue with the economy.
Australian Dollar Exchange Rates Benefit from Stronger Risk Demand Ahead of US Labour Data
Anticipation ahead of the US ADP employment figures has kindled risk appetite today, prompting the markets to shift towards buying the Australian Dollar.
The report is often used as an indicator of likely performance of the subsequent non-farm payrolls report (which is released the following day on a Friday), although there is no proven correlation between the two.
Nonetheless, a solid result from the ADP report will raise market hopes that tomorrow’s more influential non-farm payrolls figure will also prove positive, while poor performance here could prompt a sell-off of the US Dollar on fears of weak conditions in the labour market.
This potential for significant volatility in USD has prompted markets to look elsewhere for today, providing strong demand for the high-risk Australian Dollar.
Strong Rise Forecast for Australian Trade Balance; Will AUD/USD Exchange Rate Benefit?
Australian trade balance figures for November will be released shortly after midnight tomorrow, which could give the AUD/USD exchange rate a boost if the data prints in line with forecasts.
The consensus amongst economists is that the trade surplus will have risen over half a billion Dollars to AU$550 million.
This could help repair some the damage from October’s trade balance data, which showed a -93% narrowing of the surplus from AU$1.6 billion to just AU$105 million.
However, the rise would still see the Australian trade surplus languishing at its lowest levels (excluding October’s figure) since April, which may add a note of bitterness to the otherwise positive data.