Shaky Employment and Falling Iron Ore Undermining AUD

AUD

The AUD plunged significantly yesterday, setting fresh new yearly lows across all major currency pairs. The worsening domestic Covid situation, worrisome Employment data and a drop in Iron Ore prices have all combined to drive the AUD lower. Asian Equities closed overwhelmingly in the red, with the Hang Send down -2.1%. Nikkei down -1.1% and the Shanghai Comp down a modest -0.6%. The ASX fell -0.5% to its lowest level in three weeks. The drop follows a plunge in commodity prices with Iron Ore slumping -2.9% (this has now dropped for 6 straight days, the first time since Feb 2020), and Copper down -1.7%. Yesterday's July Labour force report showed a better-than-expected headline result with the official Unemployment rate dropping from 4.9% down to 4.6%. However, this was entirely due to the stay-at-home orders depressing the labour force participation in NSW. While national employment rose modestly, hours worked declined by 3 million hours, with weakness most pronounced in NSW where underemployment jumped sharply. Markets were unimpressed with the result and AUD continued to trade poorly, especially with the already weak commodity sector. 

USD

The AUDUSD has moved significantly lower, trading at 0.7149 which is the lowest it has been in almost 10 months. Risk appetite is generally soft with deteriorating Covid situations in many countries, which generates safe haven demand for the USD. The debacle in Afghanistan also contributing to the downbeat mood amongst investors. US Equities were mixed overnight with both the Nasdaq and S&P 500 posting gains of 0.1%, and the Dow Jones was down -0.2% and Oil dipped 2% to $64 a barrel. Minutes from the Federal Open Market Committee’s July policy meeting, released on Wednesday, showed that central bankers were making plans to taper bond purchases before the end of 2021. “Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes stated. On the data front, the US weekly jobless claims came in at 348,000. That was below the 365,000 claims expected by the economists and set a new pandemic-era low.

EUR

The AUDEUR headed lower overnight as we refreshed a new yearly low of 0.6113, before coming in to trade at 0.6120 this morning. The pair weakened after broader Aussie dollar weakness and a soured market sentiment. European financial markets fell sharply on fears that central bank will start tapering their emergency covid-19 support packages, despite growth in world economies, the CAC the worst affected as it closed -2.4% and the DAX down -1.5%. No eurozone data on the docket as we head into the weekend with a flurry of Services and Manufacturing PMIs for the Eurozone due on Monday week.

GBP

The AUDGBP pair followed suit to make a loss, dropping significantly lower to fresh yearly lows of 0.5224, trading at a rate of 0.5241 this morning. The London Benchmark FTSE 100 tumbled on the back of covid support concerns, closing down -1.5%. Signs of the US Fed reducing its support measure sent European equities tumbling overnight, it also comes amid focus on whether the BoE and ECB will take similar action to scale back bond-buying during the covid pandemic. Last night Britain reported 36,572 new cases of COVID-19, government data showed on Thursday, and a further 113 people were reported as having died in the last 24hr period. To the data this evening the UK will release their Retail Sales figures for July with expectations of a 0.3% decline to 0.2%.

NZD

The AUDNZD pair was down overnight, remaining within its lowest levels seen this year, coming in to trade at a rate of 1.04766 at the time of writing. Markets seem reasonably comfortable with the response to the recent Covid cases in NZ, and there's a confidence that the situation will not deteriorate into a Sydney-like lockdown. The RBNZ has also reassured markets that the interest rate hike is still around the corner. Looks like NZD will maintain the upper hand on AUD for the mid term. No data heading into the weekend.