AUD strength to persist despite weaker employment report
Australia’s July labour market report revealed a decline in employment, with the drop in the unemployment rate coinciding with lower labour force participation. Notwithstading the weakness in the report, our view is that the squeeze higher in AUD is likely to continue. For one, with the RBA having signalled a move to a neutral policy posture and markets still priced for further easing, we think the AUD will be more sensitive to upside than downside surprises on the data. Additionally, the AUD has lagged the recent bounce in Chinese share markets, and with short positioning still stretched, we see scope for the post-RBA squeeze higher in AUDUSD to extend in the days ahead. Finally, China’s trade data for July revealed unexpected strength in both exports (+5% y/y) and in imports (10.9% y/y) with the latter a positive harbinger for Australia’s foreign trade developments.
Read the full report: FX Daily
BNP Paribas