USD Weaker as Earnings Growth Slows

AUD

The Aussie is up against its major pairs over the weekend with the exception of the Kiwi dollar. Markets focused on strong commodity prices, softer earnings data & stronger employment data out of the US (increasing risk appetite), causing the AUD to rally hard against the USD and EUR and gain a smaller amount against the Pound Sterling. Asian equities were mixed on Friday with the Nikkei climbing 0.6% while the Hang Seng fell 0.3%. The ASX rose 0.7% on Friday with mining stocks lifting the index higher. Big gains were made by Gold and Silver, rising 1.8% and 2.6% respectively. Iron Ore was down 1.2% and Copper gained 2.8%. Looking to Aussie economic data, Building Approvals m/m are printing today, with a 0.1% priced in versus the -6% figure from November. Wednesday will see December’s CPI y/y figure printing, with 7.3% priced in, versus a 6.9% for the month of November. This data has strong potential to move the AUD price around as it will heavily influence the RBA’s next rate hike decision (7th Feb), so no doubt markets will be watching closely at 11:30am AET on Wednesday.

USD

Plenty of volatility in the AUDUSD pair in the weekend session with the AUD rallying over 150bps off the back of US earnings and employment data, opening this morning at 0.6879, touching a high of 0.6886 before the weekend session close. The US economy added 223k jobs in December, down from 256k though above expectations of 203k. The unemployment rate unexpectedly fell to 3.5% from a negatively revised 3.6% to come in lower than expectations of 3.7% with the participation rate unexpectedly rising 0.2%, reaching 62.3%. Tempering this somewhat was a multi-month benchmark revision that may have impacted on the results. Average hourly earnings rose 0.3% MoM and 4.6% YoY, lower than expectations of 0.4% and 5.0% respectively with negative revisions to prior numbers. Markets ignoring the better than expected headline numbers and focussing on the softer earnings data as a sign that Fed rate hikes are starting to have an impact, spurring risk appetite across markets. US yields fell across the curve and the USD fell sharply while US equity futures rose from modest losses to be up around 1% ahead of the cash open. A busy week for US data ahead, with Fed Chair Powell speaking at a panel discussion titled "Central bank independence and the mandate – evolving views" at the Riksbank’s International Symposium on Central Bank Independence, in Stockholm. Alongside a few bits of small data, CPI m/m and CPI y/y is printing on Friday, with 0% and 6.5% priced in respectively. The Fed will be watching the y/y inflation figure closely, with 7.1% being November’s y/y inflation figure, anything below will give strong signals their tightening of monetary policy is having the desired effect on inflation, and may slow down future rate hikes.

EUR

The AUD steamrolled ahead against the Euro over the weekend, gaining 60bps in 3 hours in the Friday night session, touching highs of 0.6467, before opening at 0.6459 this morning. This rally was helped along due to the increased risk appetite across markets off the back of softer earnings data and stronger employment data out of the US. Economic data out of Europe was plentiful over the weekend, with Eurozone December Flash CPI coming in at +9.2% y/y, falling faster than consensus expected with 9.5% forecast, a positive sign for the Eurozone’s economy. The Core CPI flash estimate however was above expectation, coming in at 5.2% versus the 5.1% forecast. Eurozone retail sales also hit above expectation at 0.8% against the forecasted 0.5%. A few pieces of data out of the Eurozone this week, with the key pieces being the Eurozone Unemployment Rate tonight (penciled in to be flat at 6.5%), the ECB Economic Bulletin on Thu, and the Trade Balance on Friday night.

GBP

The weekend session saw the AUDGBP seesaw rangebound, finishing slightly higher than Friday's open at 0.5659. The risk sentiment improvement in other markets not trickling over to the Aussie Pound market as strongly. British equities were in the green, with the FTSE gaining 0.9% over the weekend. The Halifax House Price Index m/m printed on Friday night, showing a 1.5% decrease for December, missing the -0.6% forecast. The British Construction PMI also printed at 48.8, an unexpectedly contractionary figure against the expansionary 50.6 expectation. Looking to the week ahead, the main piece of data for the UK this week is the GDP m/m currently predicting a -0.3% for December.

NZD

The AUDNZD down from Friday highs of 1.0863 to 1.0825 this morning, with the increased risk sentiment also boosting the NZD against other major currency pairs. Fairly quiet on economic data out of NZ this week with ANZ Commodity Prices m/m printing on Wednesday, and Building Consents m/m printing on Thurs w/ the previous November figure being -10.7% , a fairly large decrease in the rate of new building projects.