The Australian Dollar to US Dollar exchange rate rallied on Friday afternoon as markets reacted to the latest labour statistics from the US.
AUD USD jumped from 0.7518 to 0.7549 following the release of the US job data.
The US Non-Farm Payrolls figures for February printed far higher than expected, with the US economy adding 235,000 jobs last month, easily outperforming expectations it would only rise by 190,000.
The largest source of growth was in the construction sector, which added around 58,000 new jobs, with optimism toward Donald Trump’s $1 trillion infrastructure spending pledge possibly prompting the largest increase in construction jobs in almost a decade.
The increase caused the unemployment rate to fall back to 4.7%, a surprisingly quick recovery after it rose to 4.8% at the start of 2017.
The robust data now makes it almost certain that the Federal Reserve will vote to raise US interest rates when its meets for its latest policy meeting on Wednesday, with CME Group’s FedWatch tool reporting that market odds of a March rate hike currently sit at over 90%.
James Knightley, senior economist at ING said;
‘Ahead of this release financial markets were fully pricing in a 25 basis point rate hike from the Federal Reserve next week. Today’s data will only cement those expectations. As for the rest of the year, financial markets are pricing in just shy of two more 25 basis point hikes with the Fed’s dot forecasts suggesting FOMC members fully expect two more.’
However despite this bounty of positive data for the US economy it was the Australian Dollar and not the US Dollar that surged in the afternoon.
It appears that with the rate hike essentially a dead cert at this point and markets having already priced it in, investors are looking to other currencies to make a quick profit, with the high-yield ‘Aussie’ being seen as a perfect target.
However the spike could prove to be short lived as the continued decline in commodity prices has begun to erode the appeal of AUD and its commodity correlated cousins.
Prices for iron ore in particular have been hit by the recent downturn, with the value of Australia’s largest export falling over 8% in the last couple of weeks as demand in China plummets.
However if the Australian Dollar can cling to its gains until Tuesday, it may be able to solidify its position following the release of Westpac’s Consumer Confidence survey, which is expected to report that household sentiment rose in March thanks to the recent uptrend in economic data.
Meanwhile, USD investors are likely to remain laser focused on the Fed policy meeting next week as they wait for the confirmation that US interest rates will be hiked in March.
However some traders may also find some time to skim over the latest US inflation report, which will also be released on Wednesday, with the US Dollar likely to strengthen if the uptrend in the inflation rate continues for the seventh consecutive month.