• Aussie dollar advances despite weakened Chinese CPI on broad greenback weakness;
• UK unemployment drops to 6.0% in September as labour market continues recovery;
• Contraction in US retail sales prompts broad greenback sell off amid global growth concerns.
The Aussie dollar remained firmly anchored to $0.87 when valued against its US counterpart throughout our domestic session yesterday and a softer CPI reading from China was largely dismissed. There is a sense that bad news is good news in China and weakened CPI only prompted speculation that China may respond with stimulus to boost growth. Trading sideways throughout the Asian session, the Aussie dollar gathered some pace on as the US released weakened retail sales data causing a broad sell off in the greenback whilst buoying the local currency. The Aussie dollar opens this morning above $0.88 and will likely take its cues from a string of local and Chinese data for release after 11:00 AEST.
UK markets were pleased to see some positive labour market data yesterday following a dismal inflationary reading earlier in the week. Unemployment was reported to have dropped from 6.2% in August to 6.0% in September which caused Sterling to trade as high as $1.6070 against the US dollar overnight. Strength in the pound was largely owed to a weaker US dollar which has remained in the firing line over the last few trading sessions and a weakened manufacturing, production and inflation numbers are unlikely to be forgotten about in the short term. The Bank of England have made it clear on a number of occasions that a recovering labour market means nothing without a recovery in wage growth, hence markets caution in becoming carried away with the number.
As global growth concerns continue to take a grip on currency markets, a contraction in US retail sales overnight only reminded markets that the US economy is not bullet proof against a weakness in the Japanese and European economies, particularly as Chinese growth continues to stagnate. Retails sales during September contracted 0.3% versus an expansion of 0.6% in the previous month, and whilst the market had expected a moderate contraction, this number came as a surprise. USDJPY dropped to lows of ¥105.19 overnight, its lowest level in 5 weeks as investors turned to the safe haven Yen. EURUSD traded as high as $1.2880 overnight, a level at which the European Central Bank will undoubtedly cite concern over as it remains crucial for the European economy to maintain a competitive exchange rate.