Mixed Employment Data Fails to Limit Australian Dollar Demand

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  • Falling Australian Participation Rate Undermines Confidence in Labour Market Outlook – AUD exchange rates push higher
  • UK Retail Sales Contraction Pushes Pound Sterling Lower – Confidence in domestic outlook diminishes further
  • Hawkish Federal Reserve Minutes Pave Way for Further Interest Rate Hike – US Dollar gains ground as jobless claims fall
  • New Zealand Dollar Remains Supported by Lower Odds of RBNZ Rate Cut – NZD exchange rates look vulnerable to selling pressure

Australian Dollar Shrugs Off Mixed Labour Market Data

The latest Australian labour market data proved to be something of a mixed bag as the employment change figure fell short of forecast even as the unemployment rate unexpectedly dropped. Investors were caught off guard by the unemployment rate’s abrupt fall from 5.3% to 5.0%. Although this change was primarily driven by a slump in the participation rate, meaning that fewer Australians are now active within the jobs market, the Australian Dollar was able to shrug off the disappointing result.

Even so, if market risk appetite continues to weaken today AUD exchange rates look vulnerable to losses.

Retail Sales Decline Weighs Heavily on Pound

In another disappointing development for the UK economy September’s retail sales data proved weaker than anticipated. As sales fell -0.8% on the month this indicates that the summer boost to sales has now faded, leaving the sector exposed to wider economic pressures. Demand for the Pound also eased after Theresa May’s crunch meeting with EU leaders failed to yield any breakthrough on the issue of Brexit. With the odds of a no-deal scenario rising the mood of GBP exchange rates naturally soured.

Unless the latest UK public sector borrowing data provides a positive surprise the Pound is likely to remain under pressure tonight.

Euro Struggles to Find Support After Mixed German Price Data

As the Federal Reserve looks set to pursue a further tightening of monetary policy the Euro came under pressure from the relative strength of USD exchange rates. The chances of greater European Central Bank (ECB) hawkishness remain muted, with September’s German wholesale price index figures proving mixed. With confidence in the Eurozone’s inflationary outlook limited and investors still warily eyeing the Italian budget conflict there was little scope for single currency demand yesterday.

A narrowing of the Eurozone current account surplus in August could drive further EUR exchange rate weakness.

US Dollar Benefits From Hawkish Fed Meeting Minutes

USD exchange rates strengthened in response to September’s Federal Open Market Committee (FOMC) meeting minutes. As policymakers maintained a hawkish outlook in spite of recent attacks from the Trump administration this gave the US Dollar a boost. The odds continue to favour interest rates rising again before the end of 2018, with further rate hikes to follow in the coming year. Positive jobless claims figures added to the appeal of the US Dollar overnight.

However, a contraction in existing home sales may undermine USD exchange rate gains tonight, with the domestic housing market having performed poorly in recent data.

Solid ADP Employment Report Supports Canadian Dollar

Oil prices continued to fall yesterday, exposing CAD exchange rates to further downside pressure. With US stockpiles building the mood of the oil market deteriorated, with the prospect of another global supply glut discouraging investors. Even so, a strong ADP employment report bolstered confidence in the outlook of the Canadian economy. As the labour market strengthened in September hopes of further Bank of Canada (BOC) policy action picked up.

Any weakening in tonight’s Canadian consumer price index data, though, may drag CAD exchange rates lower on the prospect of a less hawkish BOC policy outlook.

Interest Rate Optimism Keeps NZD Exchange Rates on Stronger Footing

Despite the absence of any fresh domestic data the New Zealand Dollar was able to hold onto a stronger footing against many of the majors. The relief from the lower odds of the Reserve Bank of New Zealand (RBNZ) cutting interest rates helped to keep NZD exchange rates biased to the upside yesterday. Even the hawkish Fed minutes were not enough to knock the New Zealand Dollar back.

This sense of optimism may continue to support the ‘Kiwi’ heading into the weekend, although risk aversion could still dampen the mood of investors.

Data Released

October 19th 19:00 EUR Current Account (AUG) 21.4 billion
October 19th 19:30 GBP Public Sector Net Borrowing (SEP) 4.6 billion
October 19th 23:30 CAD Consumer Price Index (YoY) (SEP) 2.7%
October 20th 01:00 USD Existing Home Sales (MoM) (SEP) -0.9%

Post by TorFX

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