Aussie Drops as Kiwi Pops

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Market Drivers for September 12th, 2013
AU Labor data horrid drags Aussies towards 9200
RBNZ hints at rate hikes in 2014
Nikkei -0.26% Europe 0.07%
Oil $107/bbl
Gold $1342/oz.

Europe and Asia:
AUD Employment -10.8K vs. 10.2K
AUD Unemployment rate 5.8%
EUR IP -1.5% vs. -0.1%

North America:
USD weekly jobless 8:30

It was night of marked contrasts in Asian session trade as the two Tasman sea neighbors went their separate ways with NZD/USD soaring in the wake of the RBNZ meeting that hinted at a rate hike in 2014 while AUD/USD dropped more than 100 points after AU labor data missed expectations by a very wide margin.

In New Zealand the RBNZ kept rates on hold as expected, but noted that it is likely to raise rates in 2014. The central bank stated that global growth outlook is mixed with GDP growth in China and Australia slowing. Nevertheless the RBNZ is greatly concerned with the growing bubble in the housing market stating that it does not ,”want to see financial or price stability compromised by continued high house price inflation.Restrictions on high loan-to-value residential mortgage lending, which will come into effect next month, are expected to help slow the national housing market.”

There is concern among New Zealand monetary policymakers that these “macroprudential controls” are not working as well they should be and therefore the authorities may resort to rate hike to clamp down on asset price inflation. The RBNZ may do so despite concerns that the kiwi exchange rate remains high hurting terms of trade. Governor Wheeler repeatedly stressed that point yesterday, but the currency market ignored the jawboning and bid the kiwi to fresh weekly highs of 8150.

Meanwhile across the water, the situation in Australia was starkly different as AU Labor data disappointed the market missing as the economy lost rather than gain jobs in August. AU employment contracted by -10.8K versus 10K eyed. The underlying data was even worse than the headlines with full time employment losing another -2.6K after a loss of -6.7K in July. Part time jobs declined -8.2K versus -3.5K in July.

The Australian unemployment rate printed at 5.8% as expected but that was only because Labor Force participation shrunk to 65% from 65.2% expected. This was the lowest level of Labor force participation since 2007 clearly suggesting that the great Australian boom is over.

The news put a serious crimp in the Aussie recovery rally with the pair dropping to a low of 9233 in the aftermath of the release. The Aussie has been a relative strength performer over the past week or so as concerns over the hard landing in China and further rate cuts from the RBA receded from the market. Tonight’s weak labor data however puts the issues of rate cuts back on the table. With demand likely to contract as employment conditions deteriorate the RBA may have no choice but to accommodate more before the year end and such a move could put further downward pressure on the Aussie.

Meanwhile in Europe the calendar was relatively quiet, but the sharp drop in EU Industrial production kept EUR/USD on the defensive with the pair dipping back below the 1.3300 level EU IP fell by -1.5% versus -0.1% eyed with particularly bad reading out of Italy. The news shows that the EZ recovery remains hesitant and uneven which in turn is likely to keep the EUR/USD contained to current ranges.

In North America today the calendar carries only the weekly jobless claims which are anticipated to rise to 332K from 323K the month prior. The weekly claims have been on a steady trend lower and have been one of the key supporting points for a US economic recovery. So if today’s data shows a marked deterioration, USD/JPY could come in for further selling pressure with the pair targeting the 99.00 figure as the day proceeds.

Boris Schlossberg
Managing Director

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