Dollar Rises Again on Risk Aversion, Aussie Weak after Job Report

Dollar rises broadly again risk sentiment turned sour again. While Yen and Swiss Franc are still firm elsewhere, the greenback has overtaken their top position for the week. Meanwhile, commodity currencies remain the worst performing ones, as led by New Zealand Dollar, closely followed by Australian Dollar. Euro and Sterling are mixed for the moment.

Technically, EUR/USD is finally moving away from 1.1705 support as selling accelerates. Focus is turned to 1.1602 support next and bring there will carry larger bearish implications. We’d also pay attention to the development in Gold. Break of 1770.68 support will suggest rejection by 1800 handle, and bring deeper fall. That would be another signal of Dollar’s strength if happens.

In Asia, at the time of writing, Nikkei is down -0.73%. Hong Kong HSI is down -1.80%. China Shanghai SSE is down -0.71%. Singapore Strait Times is down -1.00%. Japan 10-year JGB yield is up 0.0023 at 0.019. Overnight, DOW dropped -1.08%. S&P 500 dropped -1.07%. NASDAQ dropped -0.89%. 10-year yield rose 0.015 to 1.273.

FOMC minutes: Most participants said appropriate to start tapering this year

In the minutes of July 27-28 FOMC meeting, Fed said “all participants” assessed that progress were made towards the both the maximum-employment and price-stability goals. However, “most participants” judged that the standard of “substantial further progress” on employment “had not been met yet”. “Most participant” said the standard was met regarding price-stability, even though a few participants noted that “transitory nature” of this year’s rise in inflation.

“Most participant” said provided that the economy were to “evolve broadly as they anticipated”, it could be “appropriate” to start tapering “this year”. “Various participants” said the economic and financial conditions would likely warrant a reduction in purchase “in coming months”.

But “several others” indicated that tapering would more likely to be become appropriate “early next year”, as they saw prevailing conditions in labor market as not being close to the “substantial further progress” standard, or due to the “uncertainty” about progress on price stability.

Australia unemployment rate dropped to 4.6%, people falling out of the labour force

Australia employment grew 2.2k in July, better than expectation of -45.0k contraction. Full-time jobs dropped -4.2k while part-time jobs rose 6.4k. Unemployment rate dropped -0.3% to 4.6%, which was already -0.6% lower than than 5.1% level at the start of the pandemic in March 2020. However, participation rate dropped by -0.2% to 66.0% at the same time.

Bjorn Jarvis, head of labour statistics at the ABS, said: “Early in the pandemic we saw large falls in participation, which we have again seen in recent lockdowns. Beyond people losing their jobs, we have also seen unemployed people drop out of the labour force,”

“In Victoria, we saw unemployment fall by 19,000 people in July 2020, during the second wave lockdown, and by 13,000 in the June 2021 lockdown. The fall in unemployment in New South Wales in July 2021 was more pronounced than either of these, falling by 27,000 people.”

“In each of these instances, the unemployment rate also fell. Falls in unemployment and the unemployment rate may be counter-intuitive, given they have coincided with falls in employment and hours, but reflect the limited ability for people to actively look for work and be available for work during lockdowns. This means that people are falling out of the labour force.”

AUD/JPY staying bearish as NSW delta cases rose to record again

Australian Dollar continues to trade as the second worst performing one, just next to New Zealand Dollar, this week. New South Wales just reported record 681 daily new delta cases and another death, while regional lockdown has been extended until August 28, in line with Greater Sydney. Victoria reported 57 new cases as Melbourne is in tough restrictions until at least September 2. Overall, weaker risk-sentiment is also weighing on Aussie, after DOW’s -1% fall overnight.

AUD/JPY is one of the biggest movers this week, and is on track to continue with the decline from 85.78. Such fall is seen as a correction to the up trend from 59.89 for the moment. Next target is 78.44 resistance support, and then 38.2% retracement of 59.89 to 85.78 at 75.89. We’d tentatively look for some support from there to bring rebound. But in any case, break of 81.56 resistance is needed to indicate completion of the decline. Or, near term outlook will stay bearish in case of recovery.

Looking ahead

Swiss trade balance and Eurozone current account will released in European session. Later in the day, Canada will release ADP employment. US will release jobless claims and Philly Fed survey.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1689; (P) 1.1716; (R1) 1.1737; More…

AUD/USD drops to as low as 1.1665 so today and intraday bias remains on the downside. We’d continue to look for strong support from 1.1602/1703 support zone to bring rebound. On the upside, above 1.1804 resistance will turn bias back to the upside for 1.1907 resistance first. however, sustained break of 1.1602/1703 will carry larger bearish implication and pave the way to 1.1289 fibonacci support.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Economic Indicators Update