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Key USD Levels to Watch Post-NFPS, AUD to Face RBA Rate Cut

Key USD Levels to Watch Post-NFPS, AUD to Face RBA Rate Cut

David Song, Strategist

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10862.77

10880.16

10803.86

0.55

102.61%

Forex_Key_USD_Levels_to_Watch_Post-NFPS_AUD_to_Face_RBA_Rate_Cut_body_ScreenShot227.png, Key USD Levels to Watch Post-NFPS, AUD to Face RBA Rate Cut

Chart - Created Using FXCM Marketscope 2.0

Release

Expected

Actual

Change in Non-farm Payrolls (JUL)

18K

1.62

Unemployment Rate (JUL)

7.5%

7.4%

Personal Income (JUN)

0.4%

0.3%

Personal Spending (JUN)

0.5%

0.5%

Personal Consumption Expenditure Deflator (YoY) (JUN)

1.3%

1.3%

Personal Consumption Expenditure Core (YoY) (JUN)

1.1%

1.2%

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains 0.55 percent lower from the open as Non-Farm Payrolls increased 162K in July amid forecasts for a 185K print, and the greenback may continue to give back the rebound from late July as it appears to be carving a near-term top just below the 10,900 handle.

Although the jobless rate narrowed to an annualized 7.4 percent, the decline was largely driven by discouraged workers leaving the labor force, and the slew of dismal developments may produce a move back towards the 38.2 percent Fibonacci retracements around 10,803-14 as the data heightens the Fed’s scope to retain its highly accommodative policy stance. As the reserve currency struggles to maintain the upward trend carried over from the previous month, we may see a larger USD pullback in the days ahead, and the dollar may trade within a broad range throughout August as market participants weigh the outlook for monetary policy.

Forex_Key_USD_Levels_to_Watch_Post-NFPS_AUD_to_Face_RBA_Rate_Cut_body_ScreenShot228.png, Key USD Levels to Watch Post-NFPS, AUD to Face RBA Rate Cut

As St. Louis Fed President James Bullard, who also votes on the FOMC this year, is scheduled to speak at 12:15 ET, the fresh batch of central bank rhetoric may spark more USD volatility during the North American trade, and it seems as though Mr. Bullard is scaling back his dovish outlook for monetary policy as he refrains from dissenting against the majority.

Nevertheless, as the dollar remains at risk for a larger pullback, a break below the 10,800 handle should present the 10,764-8 range, and we may see the reserve currency face range-bound prices ahead of the next FOMC policy meeting on September 17-18 amid the growing discussion at the central bank to taper the asset-purchase program.

Forex_Key_USD_Levels_to_Watch_Post-NFPS_AUD_to_Face_RBA_Rate_Cut_body_ScreenShot230.png, Key USD Levels to Watch Post-NFPS, AUD to Face RBA Rate CutForex_Key_USD_Levels_to_Watch_Post-NFPS_AUD_to_Face_RBA_Rate_Cut_body_ScreenShot229.png, Key USD Levels to Watch Post-NFPS, AUD to Face RBA Rate Cut

The greenback weakened across the board, led by a 1.21 percent rally in the British Pound, while the Australian dollar is struggling to hold its ground ahead of the Reserve Bank of Australia (RBA) interest rate decision scheduled for August 6 as market participants see the central bank pushing the benchmark interest rate to a fresh record-low.

According to Credit Suisse overnight index swaps, market participants are pricing a 91 percent chance of seeing a 25bp rate cut next week, but see the cash rate falling by 50bp over the next12-months as Governor Glenn Stevens retains a highly dovish tone for monetary policy.

Although there’s bets of seeing a relief rally in the AUDUSD, the pair may continue to mark fresh 2013 lows should Governor Stevens see scope to further embark on the easing cycle, and we will be closely watching the 0.8700 handle as the higher-yielding currency continues to search for support.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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