AUD/USD ranges just to the south of 0.7750 mark ahead of key jobs data

• AUD/USD is rangebound just to the south of 0.7750 mark ahead of key December jobs data at 00:30GMT.
• AUD/USD saw upside in line with other risk-sensitive currencies such as CAD and NZD.
• The Aussie has ridden a wave of “risk-on” that sent major US equity bourses to all-time.

AUD/USD saw upside in line with other risk-sensitive currencies such as CAD and NZD (the former of which got a boost from a less dovish than expected outcome at Wednesday’s BoC monetary policy decision) on Wednesday, rallying from early Asia Pacific levels of below the 0.7700 level to current levels just under 0.7750. The pair fleetingly managed to rally as high as the 0.7760 mark but could not hold at these levels for long. At present, AUD/USD trades 0.7% or more than 50 pips higher on the day. 

Driving the day

AUD has ridden a wave of “risk-on” that sent major US equity bourses to all-time highs (driven primarily by gains in tech stocks) and also sent most commodity prices higher. Markets do not fit the typical description of risk on, however; the Dollar Index trades flat (normally in risk-on conditions it would be a little lower), small-cap and value stocks have fallen (not what you would typically see on a day being driven by “stimulus hopes”) and crude oil is flat.

So net-net, it has been a bit of a weird day and thus it is hard to pinpoint on exactly what has been driving sentiment. The key fundamental news of the day is, of course, the end of the Trump era and the beginning of Joe Biden’s first term as US President. The inauguration went by without any drama and did not move markets. Much more interesting from a market perspective is still what US Treasury Secretary nominee Janet Yellen said in her testimony to Congress on Tuesday; she called for unprecedented levels of stimulus spending, endorsing President Biden’s $1.9T rescue package and subsequent recovery package.

If the Biden administration can deliver on its promises regarding stimulus (debatable as to how much of that initial $1.9T package he is going to get Congress to approve), then this will be expected to send the US economy into “overdrive”, which is likely to then boost the global economy by boosting US import demand. Australia stands to be one of the big beneficiaries of a stronger rebound in global growth and trade conditions and not to mention also stands to benefit from any further commodity price inflation US stimulus brings about. Most analysts expect AUD’s path remains to the upside in the coming months.

Aussie jobs

The most important Australian data release of the month is coming up at 00:30GMT, the monthly jobs report (this one for December). Consensus market expectations are for 50K jobs to be added to the Aussie economy in December, taking the unemployment rate down slightly to 6.7% from 6.8% and lifting the participation rate slightly to 66.2% from 66.1%. That would take the unemployment rate back to its lowest level since June 2020, though would still leave it substantially above its pre-Covid-19 levels of closer to 5.0%.

Conversely, if the participation rate comes in as expected, that would bring it back to equal the all time high level set back in September 2019 and would mark an impressive recovery from the brief drop below 63% in the immediate aftermath of the onset of the global pandemic. As ever, it will also be worth watching how much of the headline jobs number is made up of gains in full-time versus part-time jobs, with more of the former being seen as a better indication of economic strength.