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Australian Dollar Rally May Stall on Jobs Data, US Inflation Uptick

Australian Dollar Rally May Stall on Jobs Data, US Inflation Uptick

Ilya Spivak,

Fundamental Forecast for the Australian Dollar: Neutral

  • Soft Employment Figures May Stoke On-Coming RBA Easing Speculation
  • US Core Inflation Uptick May Rekindle 2015 Fed Interest Rate Hike Bets
  • Find Critical Turning Points for the Australian Dollar with DailyFX SSI

On the domestic front, September’s Employment figures are in focus in the week ahead. Economists expect a 5,000 net increase in jobs, marking the smallest gain in three months. The unemployment rate is seen ticking up to 6.3 percent to match a six-month high.

Australian data outcomes have increasingly disappointed relative to consensus forecasts in recent weeks. This suggests analysts’ models are over-estimating the economy’s vigor, opening the door for more of the same ahead.

Last week’s RBA policy announcement maintained a familiarly neutral tone, offering no pre-established bias and stressing the data dependence of the central bank’s near-term outlook. Meanwhile, traders continue to price in at least one 25bps interest rate cut over the coming 12 months. A soft jobs reading may fuel speculation that easing will come relatively sooner versus later, weighing on the Aussie Dollar.

Externally, the evolution of bets on the likely timing of the first post-QE interest rate hike by the Federal Reserve remains in focus. Indeed, the Aussie’s ongoing eight-day winning streak - the longest in two years - is playing out alongside a downturn in front-end US bond yields and a rebound in the S&P 500 as a dovish shift in expectations feeds risk appetite.

September’s US CPI data stands out as an important inflection point in the debate among a range of noteworthy releases in the week ahead. Sluggish inflation has been at the heart of the Fed’s reluctance to begin stimulus withdrawal.

US price growth readings have firmed relative to analysts’ expectations since mid-year. If this trend continues and puts the core year-on-year CPI growth rate above 1.8 percent for the first time in 14 months, traders may begin to entertain calls for a 2015 rate hike championed by most Fed officials in recent commentary. This could trigger risk aversion, weighing on the sentiment-linked Australian unit.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.