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The Reserve Bank of Australia meets tonight and new central bank governor is at the helm.  Phillip Lowe, former RBA deputy governor succeeded Glenn Stevens and investors will be paying close attention to the new governor’s tone. Chances are he is going to play it safe and maintain the central bank’s upbeat outlook.  The last time they convened they expressed confidence in the trend of growth and labor market.  When Lowe spoke last month, he said the labor market is not as strong as the unemployment rate suggests and inflation is expected to remain low for some time. Taking a look at the table below, there has been as much improvement as deterioration in Australia’s economy since the last monetary policy meeting with broad improvements in China.  Trading212 So while RBA Governor Lowe may be optimistic, the main takeaway will be patience.  AUD may fall on this but at a time when the central banks of the U.K., Eurozone, Japan and New Zealand are considering more stimulus, a neutral bias will make any declines shallow. In fact we believe the better trade is to be long AUD pre-RBA.

The stakes are high for tomorrow’s Non-Farm Payrolls report causing some trades to reduce long dollar positions ahead of the high profile release. Trading212 Federal Reserve officials made it very clear that the decision on a rate rise in September would hinge in large part on tomorrow’s jobs report.  If non-farm payrolls exceed 200K and the unemployment rate holds steady or better yet improves, then expectations for a rate hike this month will spike, sparking a broad based dollar rally that will take USD/JPY to fresh 1 month highs. Trading212 If the numbers are strong enough, we could even see 105 USD/JPY.  However, NFP disappoints we could see a nasty correction in the dollar particularly after the strong gains that it has seen this month. The steepest decline should be against the British pound and New Zealand dollars – two currencies that have performed particularly well pre-NFP.

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Taking a look at the leading indicators for non-farm payrolls, there’s no reason to believe that the number will be overwhelming strong.  We know that Federal Reserve officials are hopeful because they have been talking about the healthy pace of job growth but the smaller amount of layoffs, rise in jobless claims and mixed confidence readings raises red flags. Trading212 The increase in ADP employment change was extremely modest and t the manufacturing sector continued to shed jobs.  Our most reliable leading indicator for non-farm payrolls is the ISM non-manufacturing report and that will not be released until next week.  Even though U.S. policymakers have been adamant about the need for a further rate rise, Trading212 investors have been very skeptical.  They certainly don’t believe that the economy is healthy enough for rates to rise twice this year nor are they convinced that data is strong enough to warrant a hike in 4 weeks.  An unambiguously positive report would be needed to convince them otherwise.