• Updated 5 mins ago

$A extends rally, job data could provide further boost

NAB economist Rodrigo Catril says the Australian dollar "now has more freedom" to move still higher.
NAB economist Rodrigo Catril says the Australian dollar "now has more freedom" to move still higher. Brendon Thorne
by Timothy Moore and Myriam Robin

The Australian dollar extended an overnight rally after jobs data released on Thursday morning showed a decline in the unemployment rate. 

The dollar traded at US77.30¢ shortly after 11.30am, its highest value since the November 8 US election, after an overnight surge in which it gained more than 1 per cent to trade at overnight lows of US76.37¢.

Helping the Aussie's advance was the US dollar, which ended the session little changed to lower against most major currencies amid some profit taking.

The Australian dollar, which has risen 7.2 per cent so far in 2017, managed to press through a key technical trading level, said NAB economist Rodrigo Catril. He said it "now has more freedom" to move still higher.

The currency rallied strongly from its overnight low.
The currency rallied strongly from its overnight low. Bloomberg

After nine consecutive days on a US76¢ handle, AUD/USD finally broke on to a US77¢ handle just before the London close and for the first time since November 10, Catril said. The bank's model "suggests the AUD can trade above US78¢ with current fair value at US77.70¢ and normal deviation around fair value  is +/- 2 cents", he said.

Paul Dales, chief Australian & New Zealand economist at Capital Economics, said "January's labour market figures highlight that jobs growth has sustained its recent momentum, but the now-familiar problem of the new jobs being mostly part-time ones rather than full-time ones reared its ugly head again."  

Decline in unemployment  

Economists had been expecting the creation of 10,000 new jobs, so the 13,500 created, according to Australian Bureau of Statistics figures, led to currency traders bidding up the currency. Unemployment fell to 5.7 per cent, beating expectations it would stay at 5.8 per cent. 

In Washington, Federal Reserve chair Janet Yellen testified before US lawmakers for a second day, reiterating her expectation that the central bank would be looking at raising interest rates in the months ahead as the world's largest economy expanded, bolstering the labour market and inflation.

Coincidentally, the US released January retail sales and price data overnight, both of which added strength to the Fed's case to increase rates. Retail sales rose a better than expected 0.4 per cent last month and were revised higher for December. More importantly, the consumer price index was 0.6 per cent higher in January, and in the 12 months through last month was up 2.5 per cent – the fastest year on year rise in almost four years.

The Reserve Bank has been overwhelming positive, this month in particular – governor Philip Lowe embraced the power of global economic strength and the US path to higher rates, leading some economists to speculate that the RBA could start to signal a rate rise as early as August.

The greenback popped higher initially on the latest US data and Yellen's optimism, but it wasn't able to hold on, "partly due to an unexpected decline in industrial production", said BK Asset Management's Kathy Lien. 

"While [Yellen] was slightly more cautious [in her second day of Congressional testimony], the overall tone of her comments was positive and more importantly, after all of today's developments, rate hike expectations increased with Fed Fund futures pricing in a 46 per cent chance of a hike in March, up from 34 per cent yesterday," said Lien. Ten-year Treasury yields also resumed their rise towards the end of the New York session, a sign that the US dollar remains a buy on dips.