Aussie Tumbles as Jobs Crumble

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Market Drivers for February 13, 2014
Australian employment negative for 3rd month in a row
European monthly bulletin
Nikkei -1.79% Europe -0.37%
Oil $99/bbl
Gold $1287/oz.

Europe and Asia:
AUD Employment -3.7K vs. 15K eyed
AUD Unemployment rate 6.0% vs. 5.9%

North America:
USD Retail Sales 8:30 AM
USD Weekly Jobless 8:30 AM
USD Business Inventories 10:00 AM

Australian employment saw contraction in jobs for the third month a row sending Aussie dollar plunging by nearly a cent in early session Asian trade as markets once again started to question the prospects for economic recovery Down Under.

Australia reported yet another loss of -3.7K jobs versus 15.3K jobs forecast while the unemployment rate rose to 6.0% from 5.9% eyed. The data was woeful throughout as full time jobs declined -7.1K and participation rate dropped to 64.5% from 64.6% expected. December’s results were revised downward as well.

The news suggests that Q1 growth in Australia could lag estimates as the spillover from higher unemployment is likely to have a dampening effect on final demand. Perhaps the only positive point from tonight’s report is that the rate of contraction in the labor market has slowed, with investors hoping that next month the data will finally show gains in both full and part time jobs.

The Aussie sank to a low of 8928 in morning Asian dealing as disappointed investors bailed on the unit. The markets had anticipated a rebound in jobs, and today’s data caught many longs wrong footed on the trade. Still, as many analysts have pointed out the report today is unlikely to have an impact on RBA’s monetary policy. The central bank has built in the prospect of 6.2% peak in unemployment into its model, and unless conditions worsen materially the RBA is likely to maintain its neutral bias.

Nevertheless today’s very weak employment news has certainly dashed the hopes of the long, some of whom have already been factoring in RBA rate hikes by the end of this year. Given the weak state of the labor demand, the currency markets are likely to be much more cautious about AUD/USD for the near term and the pair could lag the other majors as prospects for recovery appear less certain. For the time being the pair had found support near the 8950 level, but could drift to test bids at 8900 as the day progresses.

Elsewhere the calendar has been dormant with only the ECB monthly bulletin on the docket.The ECB stated that data from the Survey of Professional Forecasters suggested a sharp downward revision for HICP in 2014 to 1.1% from a previous estimate of 1.5%. The estimate for 2015 was also lowered to 1.4% from 1.6%. The forecast for 2016 was pegged at 1.7% and the long-term estimate was left unchanged at 1.9%.

The news confirmed that inflation remains muted in the region and offers the ECB an opportunity to ease further. Yesterday ECB board member Couere suggested that the central bank was seriously considering negative interest rates, sending the pair tumbling to 1.3560 but unit shrugged off those concerns today and rallied more than a penny to hit a high of 1.3678 in morning European dealing.

In North America today the focus will turn to US Retail Sales which are forecast to print at 0.0% versus 0.2% the month prior.Given the weather problems across US last month, the possibility of downside print exists, but an upward surprise could help USD/JPY which has been struggling around the 102.00 for most of the night as the pair continues to find resistance at the 102.50 level.

Boris Schlossberg
Managing Director

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