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USD reverses losses as markets settle down
AUD extends gains amid solid job report
Among the G10 complex, the Australian dollar was the sole currency in positive territory this morning after the publication of the last job report from the Australian Bureau of Statistics.
The Aussie was up 0.26% against the greenback on Thursday, up to $0.7451, while most of currencies partially reversed yesterday’s sharp gains against the USD.
In April, the unemployment rate inched lower for the second month in a row, down to 5.7% from 5.9%, as the economy added 37.4k jobs (seasonally adjusted). The participation rate held steady at 64.8%. However, the details of the report are not that rosy as full-time employment decreased by 11.6k jobs, while part-time employment rose by 49k, suggesting that the job market is not as healthy as the headline figure suggests.
We reiterate our view that the picture is not that bright for the Australian, particularly in view of growing concerns about China’s economic outlook, which sent iron ore prices into free-fall. Therefore, we do not rule out further AUD weakness, even though a stabilisation of the Aussie is the most likely narrative at the moment.
As explained last week, investors are still heavily positioned for further appreciation of the Aussie. The unwinding of the long speculative positions - net long non-commercial positions currently stand at around 21% of total open interest as reported by the CFTC - should continue, which could potentially only accelerate the AUD debasement.
Gold supported thanks to Trump and political uncertainties
It seemed very unlikely that global political uncertainties would rekindle so fast after the French election, in which the second round between Emmanuel Macron and Marine Le Pen was a non-event.
Yet, as often in financial markets, uncertainties are coming from where it was not really expected. And those uncertainties are now coming from the US and more precisely, from the Oval Office.
The President Trump issue regarding the FBI investigation are weighing on credibility while rumours are growing that an impeachment procedure may at some point take place. Yet, we remain suspicious of that at this point but can see the dollar is getting weaker. This year was expected to be calmer for financial markets, but it may yet be complicated for Western countries.
On top of that, the equity markets had their worst day yesterday since Brexit. The S&P lost almost 44 points. This also supports the bearish move on the dollar. Anyway our view remains the same as we believe the economy is underestimated. We now consider that we are still at the start of a risk-off move and that gold is set to to strengthen further.