Market Drivers January 12, 2015

Dollar reverses flows in Europe, as bids return
Aussie drops 100 points off the highs
Nikkei 0.18% Europe -0.84%
Oil $47/bbl
Gold $1222/oz.

Europe and Asia:
AUD ANZ Job Adverts 1.8% vs. 0.7%
AUD Home Loans -0.7% vs. 1.8%

North America:
No Data

It was a tale of two markets on the opening of new trading week with Asia selling dollars at the outset of trade but Europe quickly reversing those flows with USD/JPY especially becoming bid while commodity pair reversed their gains.

There was very little fresh economic news on the first trading day of the week and the trading action reflected the mixed market reaction to Friday’s NFPs which showed large gains in jobs but very weak wage numbers putting into question the prospect of Fed rate hike by early summer. In Asia the dollar profit taking theme continued with AUD/USD especially strongly bid as carry traders continued to plow into the unit.

But when Europe came on line the Aussie reversed sharply dropping more than 100 points off session highs. There was little news to drive the move except for a smattering of second tier housing and employment data in early Asian trade and some of the flows may have been caused by increasing speculation that the AUD/NZD exchange rate could reach parity sometime this year.

Latest reports from the Australian press suggest that many bank analysts expect the RBA to cut rates this year in response to a near 50% drop in commodity prices. Over in New Zealand meanwhile the housing boom has the RBNZ contemplating further rate hikes and resulting divergence in monetary policies has pushed the AUD/NZD cross to within 3 pennies of parity.

Whether the RBA decides to ease policy further remains to be seen, but this week’s AU employment report could be the key to setting market expectations for the near future. The market is already expecting a sharp retrace to 5.3K from the 42K gain the month prior. However if employment actually turns negative the pressure on the RBA to act will increase exponentially and Aussie could crack the 8000 level as speculators exit the trade.

Meanwhile in North America the calendar is nearly barren and currencies, especially USD/JPY, will take their cue from equity flows. USD/JPY is now firmly entrenched in the 118.00-120.00 zone but it remains in a corrective phase as doubts about Fed’s path to normalization remain. Until the pair can close above the 120.00 figure on a closing daily basis the uptrend will not resume.

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