Market Drivers for September 11 2014

Australian employment shows massive upside surprise but market shrugs off data

USD/JPY runs through the 107.00 barrier

Nikkei 0.75% Europe .01%

Oil $91/bbl

Gold $1250/oz.

Europe and Asia:

NZD RBNZ keeps rates on hold

AUD Employment 121K vs. 14K eyed

CNY Chinese CPI 2.0% vs. 2.2%

EUR German CPI 0.0% vs. 0.0%

North America:

USD Weekly Jobless Claims 8:30 AM

The Australian employment report shocked the market to the upside printing 10 times greater than the consensus forecast, but after a knee jerk reaction higher the Aussie reversed all of its gains and was actually trading lower on the day as currency traders shrugged off the news as a statistical aberration.

Australia reported a whopping 121K gain in jobs versus 15K eyed with part time making up the bulk of that number at 106K. Still the full time jobs increased a very respectable 14K in August while the unemployment rate declined to 6.1% and the participation rate increased 65.2%.

Overall this was a blockbuster number showing much stronger than expected demand for labor across the board, but market took the data with a grain of salt. Two months ago the Australian Bureau of Statistics reported a job loss of more than 70K as they instituted a new methodology for calculation and today’s data appears that the department is still making adjustments to its new measuring techniques. To put today’s data in perspective it would approximately equal the creation of 1.5M new jobs in US in just one month’s time – clearly an unlikely event given the tepid global growth conditions.

Still today’s data indicates that the RBA is unlikely to change its neutral monetary stance towards any easing bias, and in fact if today’s numbers have a kernel of truth to them and the labor conditions continue to show marked improvement the RBA may once again switch to a tightening bias in order to curtail the excess demand in the booming housing sector. All of this suggests that sharp decline in AUD/USD – triggered in large part by speculative flows moving back to the greenback – could be coming to an end. The pair has dropped more than 200 point over the past few days but had found support ahead of the 9100 level and is likely to find even more buyers near the 9000 figure as bargain hunters come out of the woodwork.

Elsewhere in the region kiwi came under further selling pressure after the RBNZ left rates unchanged (matching market consensus) and announced that any further tightening will not take until the middle of 2015 at the earliest. The kiwi broke below the 8200 level in reaction to the news and drifted lower as the night progressed.

Both kiwi and Aussie have been the biggest victims of the King Dollar rally as the currency market gears up for the possible shift towards the tightening bias by the Fed and the concomitant rise in US yields. However, the Fed action if any is still a long way away, while the correction in both comm dollar currencies has been severe. Therefore as Aussie approaches 9000 and kiwi approaches 8000 both units will likely find much stronger support as the carry trade bargain hunter swoop in.

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