Today’s Key Market Drivers: 10th September 2018

“US hourly earnings continue to rise.”

The US Dollar got a boost on Friday after September’s jobs report showed 201,000 jobs were created and hourly earnings increased by 0.4% making the annual hourly earnings increase 2.9%. Traders have now priced in a 100% likelihood the US Fed will lift the official cash rate when it meets later this month. With US and China trade relations strained and US economic data that continues to impress the US 10 Year Treasury Yield climbed to 2.94% on Friday as traders bought back into the US Dollar. Other major currencies such as the Euro, Pound, Aussie and Kiwi Dollars moved lower as traders move money into the fixed income of US bonds.

The reason I reference the 10 Year US Treasury Yield today is that this guaranteed rate of return (2.94%) has the potential to move back above 3% in coming months which simply means that more downward pressure is likely for emerging market currencies and the Aussie Dollar. The AUD v USD touched another new low on Friday thanks to more retail banks in Australia lifting their variable home loan rates. This has the potential to slow the Australian economy and what traders are doing is pricing in their expectation that the RBA will remain on hold with its interest rate well beyond 36 continuous months. The RBA has not adjusted the official cash rate for 25 months and the probability is they won’t move on it in the next 12 months either. They desperately don’t want to put it down if the economy deteriorates so the probability is they will remain on hold and the Aussie Dollar will continue to fall. I posted the following comment on the TradewithAndrew Twitter feed on Saturday. The probability the AUD v USD could be 0.50c in the next 12 months is growing by the day. Another new low overnight. Banks down under will slow the economy with higher rates as global rates rise and the RBA’s rate stays on hold for 3 years. #aussiedollar

This week’s economic calendar shows two major Central Banks reporting with the Bank of England and European Central Bank releasing their September monthly statements. The market does not expect any change in monetary policy from either bank, however, forward guidance on when they may adjust policy will be eyed. Longer term I see plenty of room to the upside on both the Pound and Euro particularly against the AUD, NZD and emerging market currencies. Rates will rise in the UK and Europe in 2019 and this is sure to put upward pressure on both currencies against any currency that has rates on hold or a potential move lower. The UK and Europe from an economic perspective has plenty of upside and with interest rates so low their currencies are going to rise in coming years.

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About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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