The broad based USD correction is under way once again on Thursday, with all major currencies tracking higher against the buck, including the Yen. The star performer on the session has undoubtedly been the Australian Dollar which has surged well over 1.50% against the Greenback on the day thus far.
The catalyst for the outperformance has been driven off yet another better than expected unemployment release, which once again helps to fuel investor sentiment in the higher yielding currency. Risk appetite in general appears to be much healthier on Thursday as global equity prices firm up and commodities begin to rally. There has been a great deal of talk revolving around an imminent announcement on a bailout package for Greece and many are now speculating that the announcement could come at today’s EU Leader’s Summit. However, traders should also be paying attention to the latest from China, where the government is reportedly ordering its currency reserve managers to withdraw from risky dollar assets and shift into core debt guaranteed by the US government. This move, if true, would suggest that the Chinese government is now looking to protect itself against the threat of a fresh wave of troubles within the global macro economy. Some mixed data out from China and some slightly weaker secondary New Zealand data, failed to factor into price action.
Aussie bulls have been very hard to defeat over the past several months and part of the reason undoubtedly stems from the economy’s ability to consistently produce economic data with better than expected results. However, we often wonder how much of the strength of the Australian Dollar is driven by the ability for data to exceed expectations, rather than on the actual data itself. In the charts below, we try to make our point more clear with a side by side comparison of unemployment data out of Australia and the United States over the past several months.
A closer look at US unemployment data shows that analyst estimates are closely aligned with actual results. However, in Australia, the results have been much more interesting and somewhat misleading. The unemployment data in Australia has either well exceeded or matched expectations over the past several months, without ever disappointing. As such, we have a hard time taking results in Australia as seriously, with analysts consistently producing estimates that are well off of the actual readings. This has set up an artificial environment in which the Australian Dollar is arguably always in a position to benefit from the data.
While we do not dispute some of the relative outperformance in the Australian economy, we would also recommend that investors take the price action in Aussie with a grain of salt. After all, how realistic is it to see expectations consistently exceeded, and if this is the case, what can be said of those analysts producing these estimates?
Looking ahead, the German wholesale price index is set for release at 7:00GMT, followed by Swiss CPI (-0.4% expected) at 8:15GMT. The publication of the ECB Monthly Report caps things off at 9:00GMT. US equity futures point to a higher open, while commodities are also bid.
[B]Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel’s reports in a more timely fashion, e-mail [email protected] and you will be added to the “distribution” list.
If you wish to discus this topic or any other feel free to visit our Forum page[/B]