The sheer weight of data out of the US at the moment is just mind blowing – the so-called transitory data as heading back to pre-pandemic levels at break-neck speed.
Let’s just rattle a few off:
– US ADP private sector employment read showing over 692,000 jobs add beating estimates by 82,000 but more importantly for the US’ economy 624,000 of that 692,000 were in services.
– May’s Pending home sales smashed expectations with a huge gain of 8.0 per cent month on month versus an expected contraction of 1 per cent after Aprils 4.4 per cent contraction. This is the strongest May growth rate since 2005 with gains seen
across all regions, the reason given – low mortgage rates.
– ISM manufacturing survey for June slipped ever so slightly to 60.6 from 61.2 but is still one of the strongest reads of the past 10 years. Biggest take out “Prices paid” rose to to 92.1 – the highest level since 1979 inflation is here.
– Weekly initial jobless claims continue to improve falling to 364,000 bettering estimates of 388,000 and the prior figure of 411,000.
This has been driving USD trading however dialog as we have been discussing for weeks is still holding back the USD bulls from really jumping in. That was until Philadelphia Fed president Patrick Harker stepped up to the mic.
His comments where strong, hawkish and of significant weight: I am in the camp of starting the tapering process… I’d like to see it happen sooner rather than later. I’d like to see it being a slow, methodical process…We’re doing $120 billion a month, if we cut back $10 billion each month, we’d be done in 12 months, right? I think that’s a reasonable thing to do.
On the Fed Funds rate, he said:” My forecast before was not touching the Fed funds rate until 2023. I'm still there right now… If we see inflation not behaving as we hoped, that is staying within our 2 percent-ish range, then I think we may have to act sooner”.
Marry this with the CPI and PCE prints of the past 2 week and then the ISM data and its USD positive all the way.
The AUD/USD hit its lowest level of 2021 of $0.7460 last week. It’s a trend we identified over 3 weeks ago and its has coming home to roost. Having failed to breach $0.780 the weakness in the AUD has been despite Australian data being positive across employment, GDP and a confidence. It reinforces the theory that the USD story is taking over the risk space due to its economic supremacy and forward outlook.