Australian dollar nears the highs of the week as risk trades continue to improve

The mood in markets continues to improve as traders digest yesterday’s FOMC decision.

The initial reaction was to sell the dollar and buy risk assets but it was swamped late yesterday by a curious round of selling. That pressure has slowly faded and now AUD/USD is near the highs of the week and the Nasdaq is up 1.6%.

It’s cliché but the next move is all about non-farm payrolls. Powell was about as explicit as he could get when asked about what it would take to cut rates and he said it would take more than ‘a couple’ tick increase in unemployment to shift in that direction. Right now, the unemployment rate is 3.8% so I’m guessing the conversations would start at 4.0% or 4.1%.

Obviously that would mean a miss on Friday but any step in that direction would get the market’s attention and vice versa.

More broadly, the stance towards flat or lower rates is clear as Powell said hikes were unlikely and emphasized that repeatedly.

On the flip side, the talk of about rate hikes in Australia has ramped up. Now I don’t think that’s today’s trade as CAD and NZD are both strong as well (though not as strong as AUD). China is certainly a focus as equities there post their best day of the year. Very few people have been touting upside risks in the Chinese economy but if that’s something you believe in, then the Australian dollar is in a great spot.