Market Drivers for January 16, 2014
AUD/USD hits 4 year lows as AU employment misses badly
EU CPI 0.8% vs. 0.8%
Nikkei -0.39% Europe -0.27%
Oil $94/bbl
Gold $1237/oz.

Europe and Asia:
AU Employment -21K vs 10K eyed
CNY FDI 5.3% vs. 5.5%

North America:
USD Weekly Jobless Claims 8:30
USD Philly Fed 10:00 EST

The Australian dollar hit 4 year lows in the wake of a horrid employment number that raised fears of further rate cuts by the RBA. Australia reported a loss of -22K jobs for December versus market forecast of 10K gain.

The labor data was depressing from every angle as full time jobs declined by nearly -32K and the month prior number was revised lower to 15K from 21K initially reported. The participation rate also declined to 64.6% from 64.8% the month prior. Unemployment rate remained steady at 5.8%.

However as many analysts have pointed out the AU unemployment rate is deceptively low. If the participation rate had remained at the 2011 average of 65.5% the unemployment rate would have actually risen to 7,1%.

The news sent the Aussie tumbling through the key support at 8850 and well below the 8800 figure where it finally found some buyers at 8770. The dour labor data numbers suggest that the RBA may now consider another rate cut – perhaps as soon as the next meeting in February. Although at the start of this year the AU interest markets had forecast no further accommodation from the RBA that assumption is likely to change as economic conditions Down Under have clearly deteriorated.

The RBA has long argued that it wanted to see the Aussie trade closer to 8500 and the unit appears destined to move towards that level especially if the central bank lowers rates another 50bp within the next six months. For now, the pair remains under heavy selling pressure but may find some near term support at the 8750 level. Yet any rebound is likely to be short lived in nature as the fundamental case for the Aussie has unequivocally turned bearish after last night’s labor report.

Meanwhile, elsewhere the price action was relatively subdued as the dollar remained firmly bid across the board. The EUR/USD popped up slightly in the wake of EU CPI data that showed prices rising 0.8% on a year over year basis. This was hardly a torrid pace of growth but the number was within expectation and provided a modicum of relief for traders who were concerned about further deflationary pressures in the Eurozone.

In North America today the focus will turn to the weekly jobless claims and to the Philly Fed data due at 1500 GMT. If the Philly numbers surprise to the upside they could provide further fuel to the dollar rally and could lift USD/JPY through the key 105.00 as the day progresses.

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