Australian dollar flat in holiday-thin trading, business and consumer confidence releases next

• 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 policy makers 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.

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AUD/USD Technical

• The round number of 0.6700 is a weak resistance line. Next, there is resistance at 0.6791
• AUD/USD has support at 0.6608 and 0.6548

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

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