Australian dollar: How will the AUD react to the upcoming non-farm payroll data?

Details

Category: Australian Dollar News

Written by Sam Coventry

International Money Transfers at our sister site

"Given the ongoing buoyancy in risky assets and our expectation of a slightly weak payrolls number, we examine how G10 currencies perform versus USD on the day of the release"

The Australian dollar (Currency:AUD) has fallen back in morning trade; that equity markets and commodities are lower this morning points to an environment that is not conducive to risk taking.


The pound Australian dollar exchange rate is 0.4 pct higher than at last night's close, the euro Australian dollar exchange rate is 0.2 pct higher at 1.2062, the Australian dollar to US dollar is 0.3 pct down at 1.0256.

The falls in the Aussie currency come ahead of an all-important US Non-farm payroll data.

Currency markets are becoming increasingly sensitive to policy initiatives at global central banks - the big question now is what will the US Fed do?

Today's data will be key to forming any decisions at the US central bank.

Barclays have this morning released a note on how the various currencies will react to the data. Of interest is that the Australian dollar will feature prominently.

In a note to clients Barclays say:

"Given the ongoing buoyancy in risky assets and our expectation of a slightly weak payrolls number, we examine how G10 currencies perform versus USD on the day of the release when it follows a month of positive/negative returns in the S&P 500."

Analysis by the bank shows that the USD typically weakens across the board following negative surprises.

The note says:

"The surprise in NFP that we expect for today is small (well within one standard deviation over the period since January 1999). In the case of small surprises, the one day returns are usually small, with no clear outperformers. If the surprises are large (above one standard deviation), the EUR and GBP tend to do well and outperform higher beta currencies such as AUD and NZD.

"That means that EUR/AUD, a popular pair to short among investors at the moment, is likely to rally. After all, if risky assets are doing well, a negative surprise from employment may not lead markets to price in a higher probability of monetary easing by the Fed.

"By contrast, if risk aversion were high, a negative surprise in NFP would likely add to market concerns about prospects for the US economy, especially if the surprise is large. A bold response by the Fed would be more likely, and risk currencies would likely rally by more than the low yielders. Crosses such as EUR/AUD typically fall in this scenario."