Aussie Pops as Jobs Data Rocks – 1.0300 in View?

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Market Drivers for May 9, 2013
Australian employment blows past estimates taking AUD/USD above 1.0200
UK IP/MP beat
Nikkei -0.66% Europe -0.60%
Oil $96.15/bbl
Gold $1469/oz.

Europe and Asia:
AUD Employment Change 50.1K vs. 11.5K
AUD Unemployment Rate 5.5% vs. 5.6%
AUD Full Time Employment Change
JPY Leading Index 97.6% vs. 97.7%
NZD Employment 1.7% vs 1.1%
GBP BOE Rate Decision n/a
GBP BOE Asset Purchase Target n/a
GBP Industrial Production 0.7% vs. 0.3%
GBP Manufacturing Production 1,1% vs. 0.4%

North America:
USD Initial Jobless Claims 8:30
USD Wholesales Inventories 8:00
CAD New House Price Index 8:30

A shockingly high employment number out of Australia sent the Aussie soaring in Asian session trade, but the pair ran into stiff resistance at the 1.0250 barrier and traded off the highs in European morning dealing. Australia job growth surged by 50.1K form 11K eyed while the unemployment rate dropped to 5.5% from 5.6% forecast.

The data beat expectations on all fronts with full time jobs rising by 34,500 while participation rate gained to 65.3% from 65.2%. The new jobs were in the most populous states of New South Wales and Victoria which added 28,000 jobs altogether while the mining center in Western Australia added only 2,100 jobs.

The Australian employment data shows that so far the economy is able to transition from mining led growth to services and construction showing far more resilience than most analysts expected. The blockbuster news instantly sent rate cut expectations lower with traders now pricing in only a 20% chance that the RBA will make additional cuts this year.

Today’s labor data was undoubtedly bullish for Aussie longs as it shows the Australian economy may not be as vulnerable to mining demand as many analysts think. Nevertheless the series has been remarkably noisy since the start of the year when the statistics methodology was revised and it may take a few more months of reports before the market can get a true sense of labor demand.

Meanwhile the very strong employment data certainly crimps the RBA’s ability to operate on the monetary level, but unless job growth translates into stronger pricing pressures – which it has not so far – the central bank may feel its has scope for further easing if the Aussie continues to climb. It is precisely this fear of further central bank action that may be keeping a cap on the Aussie rally. The pair catapulted to 1.0250 in the immediate aftermath of the release but has had difficulty clearing that level in European trade as profit taking kicked in. Still for now the pair is likely to remain bid as squeezes all the late shorts out, and if risk flows in North America prove constructive, the AUD/USD could climb towards the 1.0300 figure as the day proceeds.

In UK the positive news continued as well with both Manufacturing and Industrial production beating the forecast at 1.1% vs. 0.4% and 0.7% vs. 0.3% respectively. The surprising rebound in the manufacturing sector continues to provide UK economy with a modicum of support. Cable popped on the news to 1.5580 but remained capped by the 1.5600 level ahead of the BoE rate announcement later this morning. The market does not anticipate any changes, especially given the fact that the UK central bank is in a caretaker position until Mark Carney takes over the governorship from Mervyn King in July and the latest data has been improving pointing to a neutral policy stance for now.

In North American trade the key look will be the weekly jobless claims report which has shown consistent improvement over the past several weeks. The market actually anticipates a rise to 333K from 324K the week prior but if the data shows further decreases it could put the bid back into USD/JPY which has been drifting lower all week as it steadily gives up the gains from last Friday’s NFP report. The pair has been unable to hold the 99.00 figure and is now in danger of breaching 98.50 support which would suggest that it formed yet another short term top in its failure to take out the key 100.00 level. The currency markets remain concerned about the state of the US economy and today’s jobless claims news could assuage some of that scepticism if it surprises to the upside.

Boris Schlossberg
Managing Director

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