Market Drivers for September 12 2014

Aussie slides to 9050 as CNY New Loans weaker

EZ Industrial Production 1.0% vs. 0.6%

Nikkei 0.25% Europe -.10%

Oil $93/bbl

Gold $1238/oz.

Europe and Asia:

CNY New Loans 12.8% vs. 13.5%

EUR EZ IP 1.0% vs. 0.6%

GBP Construction Output 0.0% vs. 0.7%

North America:

USD Retail Sales 8:30 AM

USD U of M 9:55 AM

It’s been another night of very heavy selling for the Australian dollar with the unit making fresh multi-month lows at 9044. There has been little news to drive trading action with the exception of slightly disappointing data out of China where new loans came in at 12.8% versus 13.5% eyed, but the primary force behind the selloff appears to be speculative re-positioning as traders rotate into the US dollar on the assumption that US rates will begin to climb.

Several analysts have pointed out the irony of the fact that the Aussie is markedly weaker at the time when the Australian economy is showing some of its best growth rates in the past three years. Although the latest employment report may have been skewed by statistical quirks the fact of the matter is that Australia has been able to generate more than 230K new jobs this year suggesting that the underlying economy is much stronger than the consensus view.

With AU inflation elevated and already at the top of the band the prospects of any further rate cuts from the RBA look non existent. In fact if the current pace of labor demand continues for several more months, the central bank may shift its focus and resume monetary tightening to cool off the credit bubble in the housing market.

All of this suggests that the Aussie is becoming grossly oversold as the pair still remains the predominant high yielder in the G-20 universe. As Aussie approaches the key 9000 level it is likely to find more substantial bids as some of the longer term bargain hunters begin to re-establish positions. Next week the market will get a glimpse at the RBA minutes and the Annual report and it the tone of the releases remains neutral to positive the pair could finally find some support and stage a relief rally.

Elsewhere the price action was extremely muted with EUR/USD and GBP/USD trading in tight 20-30 point ranges while USD/JPY tried to make a run to 107.50 but stalled ahead of that level. Today, the market will get a look at the US Retail Sales data and the U of M sentiment survey. Both readings are expected to improve slightly, but given the lackluster pace of job growth and the uptick in the weekly jobless numbers, the possibility of a downward surprise is quite strong. A miss on the US data front could trigger a profit taking move in USD/JPY and the pair could trade back to 106.50 – especially after yesterday’s announcement by BOJ chief Kuroda that Japan will not engage in any further stimulus for now.

USD/JPY has been a runaway train over the past several weeks with the rally becoming almost parabolic and the pair is due for some profit taking if not today, then next week ahead of the FOMC meeting.

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