Aussie Unemployment Surges to 12-Year High | Go Markets Daily FX Commentary

• Australian unemployment jumps to 6.4% in July as more people are looking for work;
• No surprises in BoE and ECB rate decision meetings;
• Greenback extends gains against Euro on Central Bank policy divergence.

Australian unemployment data yesterday confirmed that the RBA’s neutral stance on monetary policy is uncertain, the market now prices in a 50% chance of a rate cut in the next 12 months. It was always going to be a big number and it will be interesting to see how the RBA will revise their Statement on Monetary Policy due for release this morning, we expect to see revised inflation and growth forecasts following yesterday’s data. Immediately after the release, the Aussie plunged 50 points against the greenback, eventually trading close to $0.01 below yesterday’s pre-data peak. The big drop came from the part-time numbers recording a loss of 14,800 jobs in July whilst full-time numbers showed an increase of 14,500 jobs for the same period and the amount of Australians on the job market unexpectedly rose by 0.1%.

As the market expected, Central Bank meetings in the UK and Europe overnight proved uneventful, both central Banks leaving monetary policy unchanged August. Whilst we had expected to see no change from the Bank of England, the market was curious as to whether Mario Draghi would provide insight into how the ECB plans to respond to slowed inflation and recent news of Italy’s recession. Giving no additional guidance on potential QE and only reiterating what has been said previously, Mario Draghi turned his attention towards heightened political tension in Ukraine and the potential economic risks as the sanctions war begins. From the UK, the decision to keep rates on hold was a given and attention now turns towards jobs data next week.

The greenback was once again supported overnight, buoyed by a fall in US jobless claims but more attributable to policy divergence between Central Banks. Data blips from the US earlier in the year saw markets push back expectations of policy movements from the Fed, Q2 data proved that the US economy is back on track and markets now expect the Fed to raise rates by July 2015. Against a troubled European economy and mixed data from the UK, the greenback has proved to be a safe bet over the last 2 weeks as the Fed looks to become more hawkish.

[B]Tom Williams
Currency Analyst[/B]