The Australian dollar has started the week with small gains. In the European session, AUD/USD is trading at 0.7532, up 0.09% on the day.
Australian dollar slides on strong NFP
The Australian dollar took a dive at the end of the week, as the US nonfarm payrolls were stronger than expected. The US economy created 850 thousand jobs in June, up from 583 thousand and ahead of the consensus of 700 thousand. The US dollar recorded broad gains and USD/AUD jumped 0.75%.
Despite the solid gain in jobs, unemployment rose to 5.9%, up sharply from 5.6%. Labour supply is the culprit holding back the recovery, as companies struggle to find employees. Predictably, this has increased wage pressures – Average Hourly Earnings rose 3.6% YoY in June, just shy of the estimate of 3.7%, and sharply higher than the May release of 1.9%. Higher wages will mean higher inflation, and that could result in the Fed tightening policy sooner rather than later.
In Australia, Retail Sales for June rose 0.4% MoM, revised upwards from the initial estimate of 0.1%. On annualized basis, Retail Sales jumped 7.7%, another indication of the strong post-Covid recovery.
The markets will be keeping a close eye on the RBA, which holds its policy decision on Tuesday (4:30 GMT). No change is expected in interest rates, which are at an ultra-low level of 0.10%. The central bank is widely expected to maintain its QE programme, but the third installment could be lower than the first two, which amounted to AUD 100 billion each. With much of the country under lockdown due to some Covid cases, the bank may send out a dovish message while at the same time tapering QE. It will be interesting to see how the Australian dollar reacts to the RBA decision.
- There is resistance at 0.7604, followed by 0.7681
- On the downside, 0.7447 is the first line of support. Below, there is support at 0.7367
For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-event 
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