Market Briefing: US jobs report in focus
The December edition of our Event Radar & Views In A Nutshell pack is here.
Marking time. Markets essentially in a holding pattern ahead of tonight's US jobs report. Easing French political concerns support EUR.
US jobs. Non-farm payrolls in focus. Reaction likely to be binary with stronger (weaker) data likely to support (weigh) on the USD.
AUD trends. AUD has clawed back some ground. US jobs report is a near-term risk event. RBA meets on Tuesday. US Fed meets the week after.
With little new information to move the dial markets have essentially been in a holding pattern ahead of tonight’s US jobs report. European equities ticked higher (EuroStoxx600 +0.4%) while the major US stockmarkets consolidated near record highs (S&P500 -0.1%). The US yield curve flattened a touch with the 2yr rate ticking up (+2bps to 4.14%) and the 10yr yield treading water (now ~4.18%). In Europe, a partial retracement of recent ‘safe-haven’ flows related to political developments in France came through after National Rally leader Le Pen indicated a budget could be delivered in a few weeks, which would mean a government shutdown is avoided. As a result, German bond yields rose ~5-6bps across the curve with the gap to French yields (a proxy for regional stress) narrowing.
This also generated a bit of renewed support for the beleaguered EUR which has edged up towards ~$1.0585 (a 1-week high). GBP is firmer (now ~$1.2756), while USD/JPY has given back a part of yesterday’s gains (now ~150). All up this has exerted some downward pressure on the USD. As a result, NZD (now ~$0.5886) and AUD (now ~$0.6453) have risen, though both remain within striking distance of recent lows. The uptick in the cyclical commodity currencies has occurred despite industrial metal and energy prices slipping back. WTI crude oil eased (-0.5% to US$68.50/brl) despite OPEC+ agreeing for the third time to delay the unwind of its production cuts because of a softer demand environment (now from April 2025, a year later than what was originally planned).
As mentioned, the next major market signpost is the monthly US jobs data (12:30am AEDT). There have recently been a few mixed signals in the broader suite of US labour market metrics. The labour market is a key input in the US Fed’s reaction function, and the data along with next week’s CPI inflation figures have the potential to reshape market expectations. On balance we believe US jobs growth probably rebounded (mkt 220,000 from 12,000) after weather disruptions last month and unemployment remained at a low 4.1%. If realised, this could see traders trim their near-term US Fed rate cut bets, supporting the USD. Markets are assigning a ~70% chance the US Fed lowers rates again in December with just over 3 cuts priced in by next October. By contrast, a soft result may see the USD dip as another US Fed reduction later this month is more fully discounted.
Global event radar: US Jobs (Tonight), RBA Meeting (10th Dec), US CPI (12th Dec), BoC Meeting (12th Dec), ECB Meeting (13th Dec), China Data (16th Dec), FOMC Meeting (19th Dec), BoJ Meeting (19th Dec), BoE Meeting (19th Dec)
AUD Corner
A softer USD, in part driven by a reduction in French political risks and a firmer EUR, has seen the AUD nudge up in otherwise quiet trade (see above). At ~$0.6453 the AUD has retraced more than half of its AU GDP related dip, although if you take a step back it remains towards the bottom end of its ~1-year range. In contrast to the uptick against the USD, the AUD has eased on most of the major crosses with the positive EUR sentiment pushing AUD/EUR below ~0.61 for the first time in a few weeks. AUD/JPY (now ~96.80) is also hovering near levels last traded in mid-September, while AUD/NZD continues to track just below its 100-day moving average (~1.0985).
Tonight's monthly US labour market report (12:30am AEDT) is an upcoming short-term event risk for the AUD. As mentioned above, on net we believe the US jobs data looks likely to have bounced back after last month’s weather-related disruptions. If realised, signs the underlying pulse of the US labour market is still healthy may see markets pare back their near-term US Fed interest rate cut expectations which in turn supports the USD and generates knee-jerk downward pressure on the AUD. We think the reverse is possible (i.e. AUD strengthens a little) if the US jobs report fails to snap back, and pressure on the US Fed to shift rates lower to support growth increases.
That said, although the US data is likely to create some short-term volatility, the bigger picture dynamics we have been lasering in on will remain in place. As discussed previously, we believe the enacting of the Trump policy agenda will be USD supportive and this should keep the AUD in the mid-$0.60s over coming quarters (see Market Musings: Trump 2.0 & the AUD). While the firmer USD impulses might act as an AUD ceiling, we don’t foresee if falling too much further, on a sustained basis, from already low levels. For one, expectations versus outcomes drive markets, and in our opinion, a decent amount of ‘negativity’ looks discounted with the AUD trading at a ~4 cent discount to our ‘fair value’ estimates (see chart). Added to that, over the past decade the AUD has not sustainably traded below where it is (it has only been sub-$0.6450 5% of the time since 2015) because of Australia’s elevated terms of trade and capital flow trends. These factors remain in place with the sharp improvement in Australia’s net international investment position over recent years meaning it is less sensitive to bouts of market turbulence than it used to be.
AUD event radar: US Jobs (Tonight), RBA Meeting (10th Dec), US CPI (12th Dec), BoC Meeting (12th Dec), AU Jobs (12th Dec), ECB Meeting (13th Dec), China Data (16th Dec), FOMC Meeting (19th Dec), BoJ Meeting (19th Dec), BoE Meeting (19th Dec)
AUD levels to watch (support / resistance): 0.6350, 0.6400 / 0.6520, 0.6570
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
FRIDAY (6th December)
JPY Labor Cash Earnings (Oct) (10:30am)
EUR Germany Industrial Production (Oct) (6pm)
SATURDAY (7th December)
USD Jobs Report (Nov) (12:30am)
CAD Jobs Report (Nov) (12:30am)
USD Fed’s Bowman Speaks (1:15am)
USD Uni. of Michigan Sentiment (Dec P) (2am)
USD Fed’s Goolsbee Speaks (2:30am)
USD Fed’s Hammack Speaks (4am)
USD Fed’s Daly Speaks (5am)
*Note, all times/dates provided are AEDT
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