• Aussie dollar moves higher after economy loses 4800 jobs;
• RBNZ raise interest rates to 3.25% indicating rising inflationary pressure;
• Sterling extends recent gains as Carney prepares markets for interest rate hike;
• Broadly weaker Greenback after disappointing economic data.
The Aussie dollar began yesterday’s trading session edging marginally lower as markets awaiting local employment data. The initial reaction to employment data was negative, the Aussie falling sharply but only for a brief moment. It was quickly realised that data wasn’t as bad as initially expected, with the majority of job losses stemming from part-time employment while full-time employment actually showed an increase of 22,000. Annualised unemployment remained steady at 5.8% but the number of people participating in Australian work force marginally decreased, supporting the underlying unemployment number. The Aussie began to gain traction throughout the afternoon session, eventually breaking the 94 US cent handle. The Aussie dollar’s major move came against the New Zealand Dollar, as the Reserve Bank of New Zealand raised interest rates by an additional 25 basis points to 3.25% in an attempt to prevent inflationary pressure further down the track.
As yesterday’s Asian session was largely dominated by the Australian jobs numbers and New Zealand interest rate hike, Sterling traded on the weaker foot, sliding across the board as overseas data read well. News this morning has changed the Pound’s course, with Mark Carney, Governor of the Bank of England suggesting that a hike in interest rates may come sooner than expected, perhaps as soon as the end of this year. Citing a string of positive economic data recently, Carney pointed out that growth has surpassed expectations and unemployment fallen much faster than could have been expected. Carefully choosing his words, Mark Carney made it clear that the Bank of England will act cautiously and raising interest rates will be a gradual process as to prevent derailing an economic recovery. A recent recommendation from the International Monetary Fund for the Bank of England to tackle the risk of a housing bubble is likely to have spurred the comments, needless to say that encouraging economic data is beginning to warrant higher interest rates.
Overnight, the anticipated US Retail Sales data and Jobless Claims failed to spur any confidence that the US economy has fully recovered from weakness earlier in the year. Whilst retail spending showed an expansion of 0.3% in May, the figure was supposed to have read twice as strong and markets seemed disappointed by the sluggish reading. A surprise uplift in US initial jobless claims did little to support the Greenback as it weakened across the board. Despite moderate weakness in the labour market, the data reads much better than it did at the start of the year and is unlikely to alter the Federal Reserve’s stance on tapering stimulus.
To end the week, Chinese Industrial Production and Retail Sales data is likely to steal the show throughout the Asian session and spur some activity in the Aussie dollar this afternoon. The market is becoming less likely to overreact to slowed activity in China, however it needs to be remembered that first quarter Australian GDP was 80% made up by mining output.
[B]Tom Williams
Sales Trader[/B]