AUD/USD dips under 0.7100 following more strong US macro data

• AUD/USD slipped under 0.7100 in recent trade after good US jobs data.
• US data has been strong this week and, coupled with a hawkish sounding Fed, presents downside risks to AUD/USD.

AUD/USD slipped under the 0.7100 level in recent trade and is currently trading lower by about 0.2% on the day, weighed by good US data. This week’s broadly strong US data endorses Fed Chair Jerome Powell’s bullish take on the economy and message that the bank should press ahead with policy tightening in light of pandemic risks.

To recap, November ISM Manufacturing PMI and ADP data released on Wednesday were both strong. Meanwhile, further evidence of labour market strength in November came on Thursday in the form of Challenger job cuts reaching lows since 1993 and weekly Initial Jobless Claims remaining at healthy, pre-pandemic levels in the week ending November 27. Friday’s US labour market report will be key, however. Another strong print could send AUD/USD back towards November lows in the 0.7060s area.

Aussie data, Victoria outbreak, RBA

Thursday saw the release of further Australian economic data; monthly retail sales and trade balance numbers were broadly in line with expectations, though monthly home loans figures saw a surprise MoM contraction. Thursday’s batch of data didn’t really shift the dial much and come after Wednesday’s not as bad as feared GDP figures, which showed the economy shrinking at a 1.9% QoQ in Q3 versus an expected 2.7% QoQ drop in economic activity (as a result of lockdowns). Australia gradually reopened in November as vaccine coverage rates hits key thresholds, but infections in Victoria surged on Thursday to above 1.4K, their highest level in around one month and Omicron is already known to be circulating – the risk of further lockdowns despite the state’s high vaccination rate remains one to watch.

For now, it seems that AUD is being insulted from domestic Covid-19 concerns as hawkish central bank expectations are priced back in, with money markets betting the RBA will keep pace with the Fed and start hiking interest rates in June next year. The RBA has insisted that it won’t hike until 2023 at the earliest, but the less bad than feared downturn in GDP in Q3 sets the stage for a stronger rebound in Q4 and the quarters ahead. “We expect the RBA to announce, next week, a decision to taper its bond-buying to A$2 billion a week from February, and likely end QE in May” Nomura economist Andrew Ticehurst told Reuters on Thursday, despite RBA Governor Philip Lowe saying a decision on QE would not be made until February.