Market Drivers for April 10 2014

Aussie takes out 9450 as employment data much better

Weidemann – we are watching inflation closely

Nikkei 0.0% Europe 0.0%

Oil $103/bbl

Gold $1320/oz.

Europe and Asia:

AUD 18.1K vs. 7.3K

AUD Unemployment 5.8% vs. 6.1%

CNY Trade Balance 7.7B vs. -0.9B

EUR French CPI 0.4% vs. 0.6%

North America:

USD Unemployment claims 8:30 AM

Australian employment once again printed much better than expected lifting the AUD/USD to fresh yearly highs as the pair broke above the 9450 level in morning European dealing. The labor data from Down Under beat on all points with jobs increasing by 18.1K versus 7.3K eyed while the unemployment rate declined to 5.8% from 6.1% projected.

Part of the rise in the unemployment rate was due to a decline in the labor force participation figures which dipped to 64.7% from 64.8% the month prior. In addition the jump in headline number masked the fact that full time employment declined by -22K while part time jobs rose 40.2K. Nevertheless the market viewed the report as strongly bullish for the Aussie as it signaled that the Australian economy remains surprisingly robust with many economists now projecting growth of 3%.

The performance in the AU labor markets was particularly impressive given the weak Trade Balance data out of China. Chinese Trade numbers actually showed a 7.7B surplus versus -0.9B forecast, but the gains came at the expense of declines in both imports and exports. Imports dropped sharply by -11.3% while exports declined -6.6% on a year over year basis. There is still a massive amount of noise in the figures stemming from last year’s over invoicing numbers as China’s exports to Hong Kong and Taiwan fell -42% but actually rose 8% from the year prior.

In any case the markets shrugged off the weak Chinese data and Aussie recovered to hit fresh highs in London dealing. The price action confirms the new thesis in the market that Australia is able to rebalance its economy making it much less vulnerable to the vagaries of Chinese demand. Against such backdrop, it is hard to imagine any further easing from the RBA which makes the Aussie a high demand currency for its yield advantage. With 9450 now gone, the bulls will focus on the key 9500 level which no doubt hold many long term stops and would be a very juicy target for longs trying to squeeze out the last few scrambling shorts.

Meanwhile in Europe ECB council member Jens Weidemann in an interview on CNBC noted that the central bank will be looking at the projected inflation data to determine its next policy steps. Mr. Weidemann once again stressed that current readings may be skewing to the downside given the sharp decline in energy costs, but the data also shows that wage growth is anemic and the downward trend continue. Today’s CPI release from France showed another miss of 0.4% versus 0.6% eyed. If the broad EZ HICP report in April shows no signs of pick up in price levels, the pressure on the ECB to begin some sort of easing action will increase to a fever pitch.

European monetary authorities have have tried to delay policy action as long as possible but they are clearly running out of time and excuses. Therefore this months inflation report looks to be the most important data point for the EUR/USD as traders will try to anticipate any possible ECB moves.

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