Portuguese Debt Concerns Favour Safe-Haven Currencies

• Aussie dollar retraced after labour market warning signs and Chinese trade balance data;
• FOMC minutes guided greenback direction in early trade;
• Portuguese debt concerns weighed on Euro;
• BoE meeting a non-event, rates on hold with no change to asset purchase facility.

Prior to the release of Australian unemployment data yesterday, the Aussie dollar began the day creeping higher, well supported above $0.94. On the announcement of local unemployment data, things took a turn for the worse as data suggested that more people are looking for work without enough new full-time job creation. Despite adding 15.9k jobs in June beating analyst forecasts of 12k, the breakdown of the data was not so appealing, with full-time job growth falling by 3.8k and the payrolls data buoyed by the creation of 19.7k part-time jobs. Unemployment read slightly higher than expected at 6.0% with an increased participation rate, not what the market wanted to see but not enough to alter growth forecasts with limited downside in the local unit. In other news, Chinese export momentum picked up in June to 7.2% from 7% in May but fell well short of analyst forecasts. With imports also marginally lower than expected, Chinese trade surplus fell more than expected in June and played some part in early Aussie dollar weakness.

Early trade in the greenback was largely dominated by the fallout from a largely dovish set of FOMC minutes, however losses were limited overnight as weekly jobless claims showed further recovery in the US labour market. As markets favoured safe haven currencies, both the US dollar and Japanese Yen were largely in demand overnight as investors took a risk-off approach after the fragility of the European economy came under scrutiny. Espirito Santo Financial suspended its shares from trading after missing a short-term debt obligation earlier in the week and reminding markets of a fragile Eurozone. In a stark reminder of contagion that gripped the Eurozone throughout the GFC, markets were not taking any risks with a sell-off in equity markets and the Euro dropping to lows of $1.3590. However, losses were limited as the general consensus is that the ECB will not let the situation get out of control.

As expected, the Bank of England rate decision came as a non-event with interest rates left on hold and no changes made to the asset purchase facility (APF). Combined with data showing a cooling housing market, further deterioration in the UK’s trade deficit and fears across the Eurozone, Sterling lost some ground overnight. A string of weaker data this week has done little to cause weakness in the pound and the market remains optimistic that a rate hike is forthcoming in the short term. Next month’s meeting however coincides with the release of quarterly inflation numbers, with the MPC citing the importance of inflationary pressures on the interest rate decision, the August interest rate meeting holds high importance.

[B]Tom Williams
Sales Trader[/B]

Very well detailed, amazing how an institution can cause so much volatility.