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Australian Dollar Facing Test Match With Labour Market and Federal Reserve Decision

Higher consumer confidence and M&A activity have helped lift the AUD but it will now be challenged by November labour data and the Federal Reserve.

The Australian Dollar extended its week to date gain over the G10 basket of rival currencies Wednesday but Aussie labour market data for November and the Fed interest rate decision in America will test the market’s appetite for the currency ahead of Thursday’s London session.

Australian unemployment is seen holding steady at 5.4% for November, according to the consensus forecast of economists. The economy is seen adding 18,100 new jobs during the month, up from 3,700 in October.

The Aussie currency has been boosted this week by better consumer sentiment data and, according to some strategist, a planned takeover of Westfield Corporation by French real estate firm, Unibail Rodamco.

“AUD Consumer sentiment in Dec ends the year with a pop to 103.3, only the second time this year printing over 100. The increases were across the board, but special shout out to family finances up +15% and 9% in recent months. Better spending for Christmas and into 2018,” says Christian Maggio, head of emerging markets strategy at TD Securities.

Unibail will pay for Westfield in cash and shares, with the cash component of the price tag equal to $5.6 billion US Dollars, which is said to have helped lift the Australian Dollar off from a six month low against the greenback.

“London markets were intrigued by the takeover offer by French property firm Unibail for Australia’s Westfield Corporation, reportedly Australia’s largest M&A transaction if it proceeds (A$21bn),” notes Sean Callow, a senior currency strategist at Westpac.

The Pound-to-Australian-Dollar rate was quoted 0.36% lower at 1.7564 around the London close while the AUD/USD rate was up 0.70% at 0.7609.

Whether or not the currency is able to hold its newly-recovered ground will depend in large part on the outcome of Wednesday’s employment data and whether or not the Federal Reserve goes ahead with a keenly anticipated rate hike around the same time and adds another dot to its plot of interest rate projections.

“Much attention will be on the “dot plots” of the expected path of interest rates. A year ago, the FOMC projected 3 hikes in 2017 despite markets consistently pricing less than that. They should deliver hike #3 at this meeting, so a similar profile for 2018 could prove supportive for USD,” says Callow.

Currently, interest rate derivatives and bond markets imply just two further Federal Reserve rate hikes in 2018, while the Federal Reserve is currently suggesting there might be three - and many economists expect another “dot” to appear in the FOMC’s projections for the Federal Funds rate next year.

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