AUD/USD reverses earlier gains ahead of US non-farm payrolls report

Australian dollar fell against its US rival on trading Friday, as markets expect the Federal Reserve Bank to continue scaling back its monetary stimulus and ahead of the keenly anticipated non-farm payrolls report, which may show that job gain accelerated in January.

AUD/USD slid to a session low at 0.8922 at 1:17 GMT, after which consolidation followed at 0.8943, down 0.18% for the day. Support was likely to be received at February 5th low, 0.8874, while resistance was to be met at February 6th high, 0.8980, also the highest point since January 14th. The pair is still advancing over 2% on a weekly basis and is poised to register its most formidable gain since the week through October 18th.

The Australian currency was gaining against all of its 16 major peers, following Reserve Bank of Australias (RBA) quarterly monetary policy statement released earlier on Friday. According to the statement, the central bank revised up its economic growth and inflation rate forecasts due to weaker exchange rate of the national currency, while also reiterating its neutral stance regarding policy.

Annualized core consumer price index is expected to reach 3.0% in late June, or 0.5% higher in comparison with the previous forecast, announced three months ago. The central bank projects a rate of inflation in the range of 2.25% – 3.25% by December this year, or a revision up by 0.25% compared to the prior forecast.

The RBA also said that factors behind price growth in the final quarter of 2013 were uncertain.

“The Aussie did actually rise initially after the RBA announcement, but then it came off,” said Greg Gibbs, a Singapore-based strategist at Royal Bank of Scotland Group Plc., cited by Bloomberg News. “I think it’s because of the general volatility in the market ahead of the payrolls figure tonight in the U.S.”

The yield on Australian benchmark 10-year bonds rose five basis points, or 0.05 percentage point, to reach 4.13%. Earlier the yield climbed to 4.16%, which has been the highest level since January 23rd.

Meanwhile, demand for the US dollar came under pressure, following a report by the US Bureau of Economic Analysis, which revealed that nation’s trade deficit widened to 38.7 billion USD in December from 34.25 billion USD during the preceding month. Analysts had forecast that the deficit figure will widen at a lesser pace to reach 36 billion USD.

However, the number of initial jobless claims in the United States came in at 331 000 during the week ended February 1st, down from 348 000 in the previous week and less than expectations of 335 000 more people, who filed for unemployment assistance.

The Department of Labor in the country may report that non-farm payrolls increased by 183 000 in January, after in December US employers added 74 000 jobs, or the smallest change since January 2011.

The rate of unemployment, at the same time, is expected to remain steady at 6.7% in January. The official numbers are to be released at 13:30 GMT today.

On Wednesday Automatic Data Processing Inc. (ADP) said that nations private sector added 175 000 new job positions in January, below expectations that jobs may grow by 189 000. In December economy managed to add 227 000 jobs.

Last week Federal Reserve policy makers reached an unanimous decision to pare back the monthly asset purchases for a second straight meeting by another 10 billion USD. This was the first meeting without dissent since June 2011, as policy makers were brought together by concern over Fed’s swelled balanced sheet which raised risks of asset bubbles.

The Federal Open Market Committee (FOMC) said that it will further reduce its Quantitative Easing program, citing improving labor market conditions and acceleration in US economic growth during the recent quarters.

Elsewhere, the Aussie was lower against the euro, with EUR/AUD cross up 0.13% on a daily basis to trade at 1.5194 at 8:03 GMT. AUD/NZD pair was steady, dipping a mere 0.02% to trade at 1.0859 at 8:04 GMT.