Dollar Dips Ahead of US Jobs Test
AUD
The Aussie Dollar is holding broadly steady today, continuing its recent pattern of narrow trading. Asian equities ended mixed, the Hang Seng +2.2%, Shenzhen +0.6% and Nikkei -1.2%. Locally, the ASX 200 ended -0.5%, with technology and consumer discretionary sectors shedding -2.7% and -1.2%. Last week, minutes from the RBA’s August meeting reiterated that “some further reduction” in the cash rate will likely be needed, reinforcing the Bank’s easing bias and keeping the AUD capped despite improving sentiment out of China. The currency has shown resilience in the face of mixed domestic data, across employment, retail sales, and inflation, while also navigating key US developments around Fed commentary and inflation figures. Looking ahead, the focus will be tomorrow’s Q2 GDP release at 11:30 am, followed by remarks from Governor Bullock at 6 pm, both of which could provide greater clarity on Australia’s growth outlook and policy path.
USD
The US Dollar remains under slight pressure with the AUD/USD pair opening a tad higher at 0.6554. US equity markets were closed for the Labour Day holiday which saw a quiet overnight session in financial markets. Fed Chair Powell last week signaled readiness to “adjust policy” if inflation moderates and the job market softens, reinforcing expectations of easing. Importantly, US core PCE inflation (Fed’s preferred gauge) rose 0.3% in July (2.9% y/y), the highest in five months but roughly as forecasted. This suggests that recent tariffs have not yet caused an outsized surge in consumer inflation. Meanwhile, a court ruling struck down most of President Trump’s tariffs, and his high‑profile clash over the Fed (including an aborted attempt to replace a governor) has kept Fed independence in the headlines. In aggregate, the USD is broadly steady: it is slightly softer against the euro and pound but holding firm against the yen and other safe‑havens. Markets price a ~90% chance of a 25 bp Fed cut in mid‑September. Investors are focused on this week’s US data, manufacturing PMI tonight, Jolts Job Openings on Thursday, and Services PMI on Friday.
EUR
The AUD/EUR is trading flat near 0.5596 this morning. The DAX and CAc gained +0.6% and +0.1% respectively. European bond yields have moved up on global risk‑off (German 10‑yr yields hit new highs), which pushed the euro up about +0.25% vs USD. ECB officials have largely signaled that they will hold rates steady at 2.15% in mid-September, delaying any rate cuts until the economy shows clearer weakness. In fact, a Bloomberg/ECB consumer survey shows Europeans still expect ~2.6% inflation in one year’s time. Data flow in Europe is quiet early in the week, though flash Sept PMIs (due Thur) will be watched. Overall, the euro has merely retraced a bit of its earlier winter weakness as markets await fresh ECB guidance.
GBP
AUD/GBP trades flat around 0.4838 today. The Pound has firmed modestly vs the USD in recent days (as risk sentiment improved) but has lagged against the Euro. UK inflation is still relatively high – CPI was 3.6% in June (well above the Bank of England's 2% target). UK Parliament reconvenes this week, and an announcement of the Autumn Budget date could further influence rate cut expectations. In short, the Pound is modestly higher for now, but gains are capped by policy uncertainty and high yields. No data set for release today.
NZD
AUD/NZD opens at 1.1103, remaining stable since the end of August at highs not seen since the beginning of March. That uptick actually increased expectations for policy easing rather than tightening. On 20 August the RBNZ cut the OCR by 25bp to 3.00% (a three-year low) and struck an overtly dovish tone. Key data this week (trade figures, ANZ business confidence, etc.) may cause short swings, but the dominant theme is an RBNZ firmly oriented toward additional rate cuts.