The Australian dollar has reversed directions in Friday trading. Currently, AUD/USD is trading at 0.7290, down 0.30% on the day. The currency has spent most of the week close to the 73 line, but we could see some stronger movement in the North American session, with the release of US nonfarm payrolls for September.
The RBA was back in the news on Friday, as the central bank released its semi-annual Financial Stability Review. These reports are generally not all that interesting for investors, as the country’s financial system is on very solid ground. However, the report did single out the risks due to the surge in housing prices and the rise in borrowing. This has been made possible by ultra-low interest rates, and the RBA warned that lending standards must be maintained in order to risks to financial stability. This warning comes on the heels of a move by Australia’s banking regulator (APRA), which raised the lenders’ loan serviceability buffer from 2.5% to 3.0%, a move intended to reduce credit growth cool down the booming housing market.
A quick method to curb the housing market would be to raise interest rates, but RBA Governor Philip Lowe reiterated in this week’s rate statement that the Bank does not intend to raise rates prior to 2024. Without this weapon, the Bank has had to resort to urging regulators to adopt tighter lending rules in order to avoid a housing bubble which could choke off the recovery. Lowe has faced criticism for opting to leave rates on hold while the housing market is red-hot, but Lowe says he first wants to see stronger inflation and wage growth before pulling the rate trigger.
Later in the day, the US releases nonfarm payrolls. This release has additional significance ahead of a Fed tapering. The consensus for September is around 500 thousand new jobs. If the release meets or beats expectations, that should cement a Fed taper in November or December and send the US dollar higher. If NFP misses the consensus, there will be concern over the strength of the US recovery and the Fed may push off a taper until early 2022. This uncertainty could send the greenback lower. Given this binary outcome, traders should be prepared for some volatility from AUD/USD in Friday’s North American session.
- AUD/USD continues to put pressure on resistance at 0.7325. Next, there is resistance at 0.7389
- The pair has support at 0.7184. Below, there is support at 0.7107, protecting the 0.71 line