Australian Dollar Flat in Holiday Thin Trading

 | Apr 10, 2023 07:27AM ET

  • Australian banks closed for Easter Monday, AUD/USD unchanged
  • Australia releases Westpac consumer sentiment and NAB business confidence on Tuesday (Australian time)
  • A solid US nonfarm payrolls report has boosted the likelihood of a Fed rate hike at the May meeting

    • Markets await Australian confidence indicators

    AUD/USD is flat on Monday, as Australia is closed for a bank holiday. There are no Australian releases and no tier-1 events in the US today, which means it should be an uneventful day for the Aussie.

    The combination of high-interest rates and high inflation has been a double whammy that has dampened confidence in the Australian private sector. Will we get some good news on Tuesday from consumer and business confidence releases? The markets seem to think so. Westpac Consumer Sentiment was flat in March but the market consensus is 0.8% for April. Businesses have been in a sour mood, with NAB Business Confidence managing only one gain in the past five months. The forecast for the March reading is zero, following -4 in April. Confidence indicators are an important gauge of the health of the economy, as strong confidence levels often translate into increased spending.

    Last week ended with the US employment report, which indicated that the labour market remains quite strong, dashing the expectations of some that the labour market was showing cracks. The economy added 236,000 jobs in March, close to the estimate of 240,000 and softer than the upwardly revised 326,000 reading in February. Unemployment remains very low and dipped to 3.5%, down from 3.6%. Wage growth eased to 4.2% y/y, vs. 4.6% prior and 4.3% anticipated.

    The jobs report indicated that the labour market is cooling, and the Fed will no doubt be pleased that its moves to slow the economy and curb inflation are bearing fruit. Fed policymakers want to see deceleration, but in an orderly and gradual manner so that Fed rate policy results in a soft landing. That will be no simple feat, and the worry is that the job market will suddenly lose its balance and employment data will fall sharply. Ahead of the NFP report, the odds of a 25-bp rate hike in May were 52%, and this has jumped to 65%, with a 35% chance of a pause. This shows that the markets feel that the Fed needs to raise rates some more in order to cool down the strong labour market.