US Dollar Boosted Against Pound on US Jobs data as Geopolitical Tensions Rise

The Australian dollar rallied versus the US dollar in the previous session. The pair closed Thursday 0.6% higher at US$0.6744. The Aussie dollar was extending those gains in early trade on Friday.

The Australian dollar advanced in early trade as retail sales picked up, overshadowing a more downbeat assessment of the economy by the Reserve Bank of Australia.

Australian retail sales increased 0.4% month on month in August. This represented a significant increase from the -0.1% decline in July. The improvement was less than analysts had expected. However, investors cheered the fact that recent interest rate cuts by the central bank combined with government tax rebates have helped buoy consumer spending.

The results will please the RBA, which cut interest rates for a third time this year, to a record low 0.75%, as they attempt to boost employment, consumer spending and the lacklustre inflation.

The encouraging retail sales figures overshadowed the RBA’s bi-annual Financial Stability Review which highlighted housing market risk and growing uncertainty over the global and domestic outlook which increased the chances of weaker economic growth.

Will US Jobs Report Send Dollar Lower?

The dollar was broadly out of favour on Thursday and was extending those losses on Friday as investors digested a week of disappointing data and as they look ahead to the US jobs report, the non-farm payroll. The non-farm payroll is the most closely watched macroeconomic statistic by both investors and the Federal Reserve. It provides information on the health of the US labour market and more broadly the US economy.


How does the non-farm payroll (NFP) affect the US dollar?
It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the goods and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes up the currency’s worth.


Analysts are expecting 140,000 jobs to have been crated in September and average wages to have increased 0.3%. Should the numbers miss these estimates, concerns will grow over the state of the US economy, particularly given the barrage of weak data that investors have witnessed this week.

Dollar traders will then turn their attention to Federal Reserve Chair Jerome Powell when he gives a speech later. Investors will be looking for any clues as to what the Fed intend to do next with monetary policy in light of the poor data this week.


What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.

For example, it could be written:

1 USD = 0.6784 AUD

Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar.

Or, if you were looking at it the other way around:

1 AUD = 1.4739 USD

In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar.


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