Vang SJC

Fundamental Analysis

The U.S. dollar keeps steady today as the lower-than-expected data released last Friday (2/9) had little impact on investors’ perception that the Fed is likely to raise interest rate this year.

US data

August NFP reports

The weak all-important payrolls data published in U.S. last week did not change the markets’ expectation for another Fed interest rate. The U.S. Labor Department reported on Friday (2/9) that the number of employed people rose by 151,000 jobs last month. Before that, economists had expected this figure would rise 180,000 jobs (excluding the farming industry). Meanwhile, the average hourly wage earnings came as a disappointment with a minuscule 0.1% soar, missing the expectation of a 0.2% growth rate. The unemployment rate in August remained unchanged at 4.9%  as it did in the previous two months. This is higher than the expectation of a 4.8% rate.

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Despite these pessimistic readings, investors still hold a strong belief on Fed rate hike this year since the average non-farm employment change data over the last three months increase more than 200,000 people each month. After U.S. Labor Department report, markets priced still a 20% chance of a interest rate increase in this September. In addition,  the probability of December rate hike is more than a 60%.

FED officials

On Friday (2.9), Richmond Fed President Jeffrey Lacker delivered the upbeat tone for U.S. economy’s strength. Besides, he confirmed that the country’s current economy condition was able to put up with significantly higher interest rate.

Tomorrow, the markets wait for the non-manufacturing PMI in July from Institute for Supply Management. Analysts expected the index this month would be 55.4, nearly unchanged from June data at 55.5.

Australia data

By the meantime, Australian dollar moves higher today ahead of the Reserve Bank of Australia’s meeting on the following day. After a decrease in the preceding month, the market supposed that the RBA benchmark rate may remain unchanged at 1.5%.

Private capital Expenditure

In the last several days of the past week, Australian dollar stay quite low due to some disappointing data released by the Australian Bureau of Statistics. On the first day of this month, this market received that mixed data with the ugly capex figures but the good future investment. According to the report, private capital expenditure in Australia declined more than expected in the second quarter. The statistics stumbled by 5.4% to $28.712 billion in Q2, surpassing the analysts forecasts of a 4.2% decrease. Nevertheless, the headline figures on equipment, plant and machinery — a direct input into GDP – rose by a solid 2.8% to $12.199 billion. These unwelcomed statistics became a big hit to the Reserve Bank of Australia’s attempt to boost the inflation by cutting interest rate by 25 basis points to 1.5% when it met last month – a new record low.

Investment

However, some economists showed a brightening outlook for the country’s economy development due to encouraging future expectation. The statistics released the same date indicated that the investment rocketed to a solid $105 billion for the quarter, revising up from the reading of $89 billion in the three month to March. In spite of the acceleration in investment, it was still 3.0% lower than the levels of a year earlier. This decline was mainly brought about by the deflating of the mining investment boom. Nevertheless, the economists suggested that a reading of more than $97 billion would bear a better business investment outlook given that the firms become more willing to invest their capital for Australia’s transitioning economy.

On the same day, the Australian Bureau of Statistics also posted the retail sales figure on July. It increased 0.0% month-on-month, after June’s marginal 0.1% growth rate. The markets had expected more positive result with an accelerated rate of 0.3%. Economists’ optimistic assumptions about the strength of household consumption faded away, which casted downwards pressure over the Australia dollar.

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Cash rate

After these mixed data, the markets seemed to have little faith in another rate cut.  Investors assign a mere 5% probability that there will be another rate cut to the cash rate on Tuesday (6/9), according to the ASX. Nevertheless, the low interest rate would remain for long term.  That has pushed the investors into high-yield dividend shares instead of the low-yield ones like Australian dollar.

Today, crude oil prices experience a sharp rise thanks to renewed speculation that two major oil producers including Saudi Arabia and Russia could cooperate in order to tackle weak prices and the oversupply condition. If the statement between these two countries was successful, the oil price would rise aggressively. That seemed to be good news for reliant-commodity economy like Australia.

Technical Analysis

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Fig. AUDUSD H4 Technical Chart

AUDUSD is skidding a little after break through the 38.32% Fibonacci retracement. However, the price movement has been pierced from above by the moving average 50. It indicates that the currency pair is in a bullish market. The Stochastics chart shows that the %K line (blue line) is in an attempt to cross over the overbought threshold. The price may consolidate around the 38.2% for some time, and thereafter falling back significantly.

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