Aussie dollar stages cautious recovery
Late in the session, the dollar was US91.57¢, down from US91.71¢ on Thursday. It hit a low of US90.59¢ early on Friday, after weekly US jobless claims fell to their lowest level since October 2007.
The data added to speculation that the US Federal Reserve will make an announcement on winding back its economic stimulus plan at the September 17 and 18 Federal Open Markets Committee meeting.
The dollar staged a recovery helped by stronger commodity prices and an early rally on the Chinese sharemarket, CMC Markets senior trader Tim Waterer said.
"It could be described as a cautious move higher, particularly in light of growing expectations that US tapering could be imminent which would benefit the greenback," he said. "Investors will be going over each US economic indicator with a fine-tooth comb in assessing how each release may sway the Fed's thinking."
Meanwhile, the bond market continues to sell off as the Fed moves closer to tapering its economic stimulus. Helping to fuel the speculation was data out on Thursday night that showed a fall in the weekly US jobless claims, dropping to its lowest point since October 2007.
"We've just continued to peel off all week," Westpac senior market strategist Damien McColough said. "In terms of triggers they've all been offshore, sentiment is quite negative".
On Friday night, (AEST), official US housing starts and building permits data for July will be released. Mr McColough said the data would be important to the debate about when the FOMC will start its tapering.
The September 10-year bond futures contract was trading at 96.020 (implying a yield of 3.980 per cent), down from 96.100 (3.900 per cent) on Thursday. The 10-year prices are now at their lowest level since April 2012. The three-year contract was at 97.200 (2.800 per cent), down from 97.270 (2.730 per cent).
Frequently Asked Questions about this Article…
The Australian dollar weakened slightly after recovering most of its losses because strong US jobs data revived speculation the US Federal Reserve may start tapering stimulus. The dollar was trading around US91.57¢ (down from US91.71¢), after hitting a low of US90.59¢ earlier in the session when weekly US jobless claims fell to their lowest level since October 2007.
Strong US jobs figures, such as a drop in weekly jobless claims, raise expectations that the Fed could begin winding back stimulus. That tends to strengthen the US dollar and can put downward pressure on the Australian dollar as investors reassess interest rate and monetary policy outlooks.
According to CMC Markets senior trader Tim Waterer, the Australian dollar’s recovery was helped by stronger commodity prices and an early rally on the Chinese sharemarket. Stronger commodities and positive Chinese equities can support the AUD because they improve demand prospects for Australian exports.
The article notes the bond market has been selling off as tapering talk grows, which means bond prices fall and yields rise. For example, the September 10‑year bond futures were trading at 96.020 (implying a yield of 3.980%), down from 96.100 (3.900%), and 10‑year prices were at their lowest since April 2012—signals markets are pricing in tighter US monetary policy.
Investors should watch US housing starts and building permits (for July in the article), because market strategists said those data will be important to the debate about when the Federal Open Market Committee (FOMC) might start tapering its stimulus at upcoming meetings.
Market strategists quoted in the article describe sentiment as cautious to negative. Tim Waterer called the AUD’s move a ‘cautious’ recovery amid growing taper expectations, while Westpac senior market strategist Damien McColough said offshore triggers have kept sentiment quite negative and markets have been ‘peeling off’ all week.
Recent futures prices point to higher yields and expectations of tighter policy. The September 10‑year futures were at 96.020 (implying a 3.980% yield) versus 96.100 (3.900%) previously, and the three‑year contract was at 97.200 (2.800%) down from 97.270 (2.730%). Lower futures prices and rising implied yields suggest markets are pricing in a move toward Fed tapering.
Stay informed by following key US economic indicators (jobs data, housing starts, permits), watch major Fed dates like the September 17–18 FOMC meeting, and monitor commodity prices and Chinese market moves that can affect the AUD. Market strategists in the article emphasize that investors will be examining each release closely to gauge how it may influence Fed thinking and currency and bond markets.
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