Later Fed taper in play

NOTIFICATIONS

Overnight Headlines

*USD near 1-month low, hit by disappointing NFP

*US stocks were mixed with tech outperforming

*Oil extends losses after deep cuts to Saudi crude prices for Asia

*Gold holding near six-week highs and key $1835 level

*US Labor Day public holiday

USD tumbled for a sixth straight day on Friday after the August NFP came in well short of expectations (235k v 735k). DXY had its weakest close since early August but is trying to find a bid this morning. EUR managed a weekly gain of 0.7% extending its rise from a week earlier. Friday’s move to a high of 1.1909 took the pair into resistance around the figure. AUD closed at its highest level since mid-July, strengthening 2% on the week. Prices are currently holding above previous resistance at 0.7425. NZD had its highest close since mid-June.

US equities had a mixed session with the Dow falling 0.2% while the S&P500 gained 0.6% on the week. The Nasdaq was the major outperformer with a 1.5% move higher. Asian shares reached a six-week high with the Nikkei gaining 1.8% and hitting a five-month top. Hopes are high that a new PM will bring added fiscal spending. Futures are mixed with liquidity reduced due to the US holiday.

Market Thoughts – September taper delay

The big miss in the US payrolls figure took the headlines last week. Continued upward pressure on wages and a more constructive household survey did soften the disappointing 235k number. But the Delta variant took its toll in the job market with leisure and hospitality jobs, a proxy for economic reopening, flat month on month. The glass half-full view says underlying fundamentals remain in good shape with businesses wanting to hire.

So, demand is there, but supply won’t return rapidly with wages continuing to rise. This means inflation will be stickier. Employment is still some 5.3 million below the pre-pandemic peak bringing into question the Fed’s desire for “substantial further progress”. Consensus has pushed out the September taper until November, with much dependent on the Delta variant.

Chart of the Day – AUD/USD holding above 0.7425

The RBA meets overnight with analysts expecting policies to remain unchanged. But there is a risk of the postponement of tapering plans that are due to start after this meeting. Current lockdowns may potentially extend with growth forecasts for this year being slashed. Some local banks are suggesting an increase in asset purchases would be the best solution as the economy contracts.

AUD/USD has enjoyed two stellar weeks of gains. Rebounding from a low of 0.7105 in August, the pair has moved up through trendline resistance around 0.73 and the 50-day SMA. Friday’s surge touched the upper Keltner band but took it through the early August high at 0.7425 which is now support. A Fib level (38.2%) of the May-August move sits just below here at 0.7405. Targets above are the figure at 0.75 with the 50% retrace level at 0.7497.