• Aussie dollar remains resilient ahead of unemployment data today;
• UK data misses forecasts yet again, Sterling weakened against most counterparts;
• Euro collapsed on European open as German factory orders contracted in June;
• US trade balance unexpectedly narrowed in June as imports drop.
Local unemployment data today will likely provide further guidance of RBA policy adjustments and when that is likely to happen. The market expects to see 13,200 jobs created in July and the unemployment rate to remain stable at 6%, above trends by historical standards. As always, the breakdown of job creation is of major significance after the drop in full-time job creation that we saw from the June numbers. The Aussie dollar has remained remarkably resilient overnight, spiking above $0.9370 as the market dumped the greenback for Japanese Yen. Unless we see an uptick in full-time employment data this morning, the Aussie may struggle to hold onto current levels as markets use the opportunity to sell into the overnight rally.
In further signs that the UK economic recovery is somewhat volatile, data overnight revealed a slowdown in both manufacturing and industrial production in June, most likely attributable to the pound’s strength. Combined with a drop in high street shop prices, Sterling once again fell out of favour and traded at its lowest level in 8-weeks against the greenback. No change is expected from the meeting, however Sterling bulls will be hoping to see at least one MPC member to have voted for a rate hike as early as August, all will be revealed in minutes from the meeting later this month.
In a further blow to the Eurozone’s fragile economy, a significant drop in German factory orders and Italy’s return to recession saw EURUSD trade as low as $1.3330 overnight. Italy is the Eurozone’s third largest economy and with youth unemployment close to record highs, sluggish manufacturing and GDP data overnight suggesting a return to recession, data from the Eurozone only confirms the fragility of the currency union as we approach the ECB meeting this evening. We would not expect to see any significant changes to policy but we do expect Mario Draghi to make suggestions of QE.
Data from the US overnight suggested a narrowing trade deficit in June, energy imports dropping more than expected. However, concerns stemming from Military activity between Russia and Ukraine overnight made for a mixed US session. In the early hours of this morning, markets saw an order between $3 - 5 billion in Yen futures in a flight to safety, causing a reasonable spike in the greenback.
[B]Tom Williams
Currency Analyst[/B]