Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie, kiwi jump after US jobs miss
The US dollar tumbled on Friday night after the all-important US non-farm payroll report missed expectations – the first time this key US jobs report has missed expectations in 2024.
The April jobs report found 175k new jobs were added last month – below the 240k forecast. The unemployment rate climbed from 3.8% to 3.9%.
US bond yields dropped and shares surged as markets became more hopeful the US Federal Reserve might have room to cut interest rates this year.
The USD index fell to four-week lows before later recovering.
The kiwi was the best performer, up 0.9% and at one-month highs. The Aussie was also stronger, up 0.7%, and near four-month highs.
The US dollar was weaker through Asia. The USD/SGD fell to one-month lows while USD/CNH fell to three-month lows.
RBA, BoE and China trade due this week
Looking forward, central banks will be in focus this week with policy decisions expected from the Reserve Bank of Australia and Bank of England.
The RBA is expected to keep rates on hold at 4.35% at their 7 May meeting, with the accompanying statement likely discussing recent inflation trends and updated forecasts.
The Japanese yen will also be closely watched after the Bank of Japan’s 26 April meeting summary is released on 9 May – this could provide clues on the central bank’s stance regarding inflation risks and potential rate hikes.
Around the region, Bank Negara Malaysia is seen holding their Overnight Policy Rate steady at 3.00% on 9 May.
Meanwhile, China’s April trade data on 9 May will offer insights into the nation’s export performance amid external demand improvement signaled by Taiwan’s recently resilient export figures. Taiwan releases another trade update on 8 May.
Liquidity flashes warning
With the continuous loss of liquidity in the Euro area and the flattening of broad liquidity expansion in the US from here, it appears that the liquidity backdrop post-March will be less favorable for the duration of 2024.
The fact that cash allocations by non-bank investors worldwide are currently at their lowest points since the 2015–2018 period, when cash yielded practically nothing, suggests that there isn’t much of a buffer to boost financial assets from here or to withstand adverse shocks, which presents a risk to the bond and equity markets.
Higher levels of liquidity are historically associated with asset price growth – so falling levels of liquidity could weigh on equity markets. In FX markets, risk sensitive currencies like the Australian dollar or British pound have been historically impacted by liquidity growth.
However, it can be deceptive to draw comparisons to other cycles since the current cycle differs significantly from all of the prior non-recessionary Fed tightening periods. Notably, the greenback has recently been more sensitive to liquidity growth.
That said, emerging markets look better positioned in this cycle, even if growth benefits might not be uniform,
Overall, EMs, in which loan-to-deposit ratios have increased, greater private savings are being depleted, and/or deep cumulative easing is anticipated should benefit more from the so-called monetary policy channel’s boost to GDP.
While emerging market FX will remain vulnerable to any broader sell-off across markets, better fundamentals mean the impact might be less than has been seen during previous cycles.
Aussie at highs versus USD, EUR and GBP
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 29 April – 3 May
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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