Yesterday’s Aussie June employment figure surprised to the upside, after several months of flat or negative figures – following what was on paper the longest uninterrupted stretch of jobs growth on record. The ABS data revealed that the Australian economies employment change far exceeded forecasts, adding just shy of 51k jobs in the month of June, expectations had been for 14K. However, the massive figure couldn’t shift the headline unemployment rate, which held at 5.4%, with the figure attributable to a kick-up in the participation rate. The numbers will be a relief for the RBA who have sited that interest rates can’t be shifted until a tighter labour market generates wage growth and thus higher inflation. The Aussie was pulled in different directions, on the one hand by the positive local data, and on the other the tense global backdrop. The AUD/USD saw a 0.7440 high after the release of the employment data, only to have the succumb to pressure overnight by a stronger USD. Also not helping the AUD were weaker commodity prices especially copper prices which dropped to 12 month low. The risk remains to the downside after the break of 0.7400 now looking to the next support level at 0.7330.
NZ markets have been choppy this week, as the softer CPI data saw little movement in the NZD. Later in the day however, the RBNZ released their own favoured measure of core inflation which was much higher. This saw the NZD surge up to the 0.6839 level. However it was unable to hold these higher levels and has spent the last few days drifting lower on the stronger USD and lack of follow up local economic data. While there is little case for a near-term rate hike, given the RBNZ’s view this week, we believe the market maybe underestimating the probability of a rate hike in the first half of 2019. Results from the Global Dairy auction were lower, but this saw little immediate impact on NZD values. The NZD/USD is currently around 0.6740 with support still around 0.6720 and we look for a 0.6730 -0.6770 range to hold to close the week.
US markets were mixed overnight, with US equities falling and the US dollar choppy on comments from President Trump regarding the path of Fed rate rises. Overall, leaving domestic politics aside, results for the US economy have been largely positive over the few days. Corporate reporting results have remained positive with economic data over the last day also continuing an upbeat tone. Manufacturing data was ahead of expectations, but the highlight was the Unemployment Claims figure. Although only being a weekly data point, this came in at 207K, which was less than expected at 220K, and the lowest weekly claim count since 1969. On these releases the US dollar surged over 1% higher, only dropping back when Trump came out complaining about the rate increase. However, his comments on inspection were relatively innocuous as he said that while is not thrilled about Fed’s decision, as “we go up and every time you go up they (the Fed) want to raise rates again. I don’t really — I am not happy about it. But at the same time, I’m letting them do what they feel is best.” showing that he it is more of an opinion than a statement as the President has no power over Fed decisions, which is likely to remain on tightening path. The EUR/USD fell to 1.1574, with the dollar strengthening all across the board until mid-US afternoon, when President Trump made his comments on the Fed’s decision in a televised interview, triggering a dollar sell-off that sent the pair up to the 1.1677. Currently the EUR/USD is back around 1.1642 and with no releases out tonight we expect trading to remain around this level to close the week.
The shambles that is Brexit continues to overhang the UK market, with comments late this week from the head of Airbus and car manufacturer Jaguar/Landrover that they were concerned over lack of direction on Brexit decision and the affect it was having on industry planning. Lower than expected UK retail sales figures pushed the UK pound sterling to a new 2018 low of 1.2957 against the USD. However, the GBP/USD bounced later in the session, to settle at around 1.3030, thanks to US President Trump’s criticism of the Fed’s policy. The soft retail reading coupled with Wednesday’s inflation to reduce chances of an Bank of England (BOE) August rate hike. June Retail Sales, excluding volatile fuel prices, fell in the month by 0.6%, and increased 3.0% from a year earlier, missing expectations of 0.3% and 3.7% respectively, while June’s CPI was a miss, Q2 was overall a better economic performance than Q1. However a point to consider is that the BoE is still battling with the sharp drop in the pound after the Brexit referendum in June 2016, this contributed to a sharp rise in inflation and a related harsh drop in real wages. Further significant declines in the pound will not be desirable to the Central bank and could, in fact, be a key into to the BoE’s decision to hike rates to stave off inflationary pressures.
There was little in the way of meaningful economic data released for the Eurozone late this week and with nothing due tonight the EUR is expected to be solely driven by USD movements. Next week on Thursday sees the European Central Bank meeting. In the view of some analysts, ECB policy is largely set for the next year or so, and with the macro picture little changed they don’t look for any big revelations from ECB head Draghi. A muted reaction in the currency market to the July meeting is expected and a largely unchanged policy statement giving little for investors to sink their teeth into this time around. After a choppy night due we expect the EUR to close-out the week around the current 1.1620-1.1670 range.
Japan’s data released late yesterday was mixed, the trade balance came in larger than expected with a higher surplus of JPY721.4 bio in June, but imports fell from 14.0% in the previous month, to 2.5%. Japan will release national June inflation data later today, this is seen ticking modestly higher from the previous month, up to 0.8% from the previous 0.7%. The USD/JPY pair settled around 112.40 after nearing the 112.00 level, with an increased downward potential, now that the pair is back below the 112.60 level.
The CAD moved higher initially in early US trading session as rising crude oil prices helped the commodity-sensitive loonie (Canadian dollar) gather strength. However, the CAD later weakened with the USD/CAD reversing course and advancing to a fresh 3-week high at 1.3280 as the barrel of WTI oil eased below the $70 level.