Australian Dollar Outlook: Risk Trends In Focus As Traders Weigh Policy Outlooks

10 and one 10 us dollar bill

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Australian Dollar Fundamental Forecast: Neutral

  • Risk-sensitive Australian dollar shifts higher on NFP miss.
  • Westpac consumer confidence, US CPI in focus for next week.
  • Traders weighing central bank policy as jobs, inflation skew outlook.

The Australian dollar saw a sharp move higher versus the US dollar following Friday’s US non-farm payrolls report. The closely watched US jobs figure caused a surge in risk appetite across markets, accounting for the strength seen in the risk-sensitive Aussie dollar. While the NFP print saw 559 thousand jobs added for May, it wasn’t enough to meet the +650 thousand consensus forecast.

The jobs report culled rate hike bets, causing bond traders to buy US Treasuries. Yields fell in response and dragged the greenback lower. While job gains were robust in the US economy last month, the missed print takes some perceived pressure off the Federal Reserve to tighten policy. That said, traders were encouraged to take on some risk as the narrative shifts back to an easy-going central bank outlook.

The Australian dollar – being a risk-sensitive currency – rose against most of its major peers on Friday, a trend that may continue in the short-term, as the coming week offers two key economic data prints.

Wednesday will see a domestic Westpac consumer confidence report cross the wires for June, with the prior report showing a 113.1 figure, a decline from April. The Reserve Bank of Australia (RBA) has held to its dovish tones regarding its policy outlook, but a rise in the Westpac figure may boost hawkish calls and the Australian dollar with it.

Later in the week, the United States will release inflation data, which is the next big economic print traders will be watching to gauge sentiment. Inflation pressures in the economy have been front and center in the markets, exacerbated by rising commodity prices.

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