With Australia now experiencing its largest lockdown since the first lockdown March last year everyone is jumping to the conclusion this will be the biggest impact on trading.
Yet as we have been arguing for the past few months the real truth is that it’s data particularly from the US that is driving everything and the ‘anticipation’ of Fed members changing their tunes.
Let’s look at these points in more details, Australia’s employment data for June was incredibly strong with the lowest employment read since December 2010 at 4.9 per cent.
It’s also the ‘quality’ of the employment as with full time employment up 51.6k, versus part time employment falling 22.5k.
Participation has also held at 66.2%, 0.1 per cent off the record high of 66.3% seen in March.
Trading in the Aussie was interesting flicking higher on the data but really it just held range of $0.7453 to $0.7487 this is despite the fact at the same time NSW released further details of rising cases and Victoria going to into lockdown number 5.
Then there was the State side data.
The Empire State business survey surged from 17.4 in June to 43.0 in July which is a record all-time high estimates where from a reading of 18.0. This was slightly countered by the Philadelphia Fed business survey which feel from 30.7 to 21.9 in July, which is still well over the 10-year trend of 17.
Jobless claims continue to fall, and private payrolls are at the highs seen in the recovery phase post the GFC.
In short data is very positive.
Fed speak was also interesting with Fed chair Powell stated at this semi-annual testimony to the Senate “that inflation is well above 2 per cent and that they are uncomfortable with that. “… “the jump seen as due to the shock to the system and the reopening in the economy.”
He did mention that the challenge is how to react to the pressures. That is if the economic strength is temporary it would be inappropriate to act on the rise in prices, if however, this strength persists, the Board would have to re-examine the risks that it could be of a longer duration. This would be an impact on inflation expectations, something they are monitoring.
We also got uber hawk St. Louis Fed President Jamie Bullard continuing his drive to taper stating that it is time to end emergency measures. He acknowledges that some of the price pressures are temporary but worries the strength could persist into 2022. He also points to substantial progress made in the labour market. On the implementation a taper program he does not want it to be an “autopilot”, rather its should retain flexibility of purchases.
This Sate state data lead to a strong movement into the USD a trend we see continuing in the interim.
EUR/USD fell 25pips to $1.1810. GBP/USD fell 30pips to $1.3830. Risk currencies were slammed with AUD/USD falling to $0.7425 after holding up from the Aussie employment data at one point it hit $0.7411, near enough to the 2021 low. NZD/USD fell -0.7% to $0.6985 even after the RBNZ signed it was poised to raise rates.
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