TALKING POINTS – US DOLLAR, JOBS DATA, AUSTRALIAN DOLLAR, YEN

  • US Dollar[1] may retrace some recent gains after April jobs data
  • Australian Dollar[2] higher after RBA upgrades inflation outlook
  • Yen up while Asia Pacific stocks fall as Mnuchin visits China

A lackluster offering of European economic data is likely to see currency markets focused on April’s US labor-market data through the end of the week. The economy is expected to have added 192k jobs last month, marking a spirited rebound from the meager 103k increase recorded in March. The unemployment rate is seen falling to 4 percent, the west since December 2000.

On balance, traders will likely be more interested in the pace of wage inflation – where the on-year rate is expected to remain at 2.7 percent – than headline job creation metrics. The Fed has all but declared victory on reaching its goal of “maximum employment” some time ago, putting the second objective of doing so in a context of “price stability” front and center as the driver of policy decisions.

From a practical perspective, the path of least resistance probably leads lower for the US Dollar in the data release’s aftermath. It is hovering near a four-month high after a steep upshift in the Fed rate hike outlook. Wages would probably need to post an improbably large upside surprise to inspire strong follow-through in the near term. Rather, profit-taking may nudge the greenback lower after event risk has passed.

The Australian Dollar outperformed in Asia Pacific trade, rising after the RBA upgraded its inflation outlook[3] and said higher rates are likely to be appropriate “at

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