US Labor Market Remains Tight Despite Rate Hikes

AUD

The Aussie dollar opens up against majors after recent commodity strength (including Iron Ore, up +0.7%), while the ASX ended Friday’s session 0.4% higher with real estate stocks leading the gains. A quiet week ahead in terms of domestic & Chinese data, with Aussie Building Approvals m/m expected to increase +3%. The next local data focal point will be next Tuesday May 16 whereby the RBA Monetary Policy Meeting Minutes will shed light on last week’s surprise 25bps, being the 11th hike in 12 months as our central bank aims to curb persistent inflation.

USD

 AUDUSD opens up at 0.6752 despite a hot US jobs report on Friday which saw Wall St rally with the NASDAQ +2.2%, S&P +1.8% and Dow Jones +1.7%. The unexpected pickup in US hiring and wages last month increases chances the Fed will hold interest rates higher for longer and leave the door open to an 11th straight hike, potentially leading to further USD strength down the track. The Unemployment Rate fell to multi-decade lows of 3.4% (expectations 3.6%) while Non-farm Payrolls rose +253,000 last month (expectations +185,000). Regardless, financial markets are still expecting rate cuts to commence in September. This week, the main focus will be CPI on Wednesday evening where yearly inflation is expected to remain at 5%, while markets are projecting the monthly figure at +0.4%, indicating price pressures remain persistent.

EUR

AUDEUR has rallied 2% since Thursday, opening at 0.6128 while the DAX and CAC ended Friday’s session up +1.5% & +1.3% respectively. The ECB’s Villeroy hit the wires favoring smaller interest rate hikes moving forward while acknowledging several more may be needed. This was backed by the ECB’s Simkus with concerns Eurozone core inflation remains too high. Later today we’ll see German Industrial Production m/m, expected to fall -1.6%. The data may garner interest after Germany recently reported horrible factory orders data (-10.7%) as rising cost-pressures weigh on consumers and businesses alike.

GBP

AUDGBP opens up at 0.5346 while the FTSE ended Friday’s session up +1.0% despite a lack of macro-economic data. Eyes will remain focused on Thursday’s BOE interest rate decision, where recent hawkish inflation and wage data point to another 25 basis-point hike. The central bank’s emphasis on the lagged impact of previous tightening suggests the bar for future moves remains high. Economists are largely expecting a pause in June, unless significantly-unwelcomed economic news arrives over the news few weeks.

NZD

AUDNZD opens up at 1.0711 with zero data in the latter part of last week & nothing on the table today. On Friday we’ll see Inflation Expectation q/q which typically brings about some volatility. No expectations are posted, although the trend has been downward since November 2022.