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Aussie weakens by soft employment data

Overnight trading saw Aussie give back some of its recent gains following weaker than expected employment numbers. According to a report released by the  Australian Bureau of Statistics  the local labor sector contracted by 10.8k versus the Reuters consensus forecast of a 10.0k expansion. The surprise contraction drove the unemployment rate from 5.7% to 5.8%, the worst level of unemployment in 4-years.

The soft employment data caught markets off-guard and revived the idea that the Reserve Bank of Australia (RBA) will cut the benchmark interest rates again at its next press conference. This sentiment took the wind out of the Aussie’s sails in overnight trading, the AUDUSD tumbled a big figure from 3-month highs in short order. The Australian unit was softer across the board, taking notable losses against the Japanese Yen and the British Pound. However it was its southern neighbor the New Zealand Dollar that punished the Aussie hardest of all. Kiwi optimism following a hawkish Reserve Bank of New Zealand (RBNZ) helped guide the AUDNZD down over 2 big figures.

In contrast to RBA, which has been very vocal and dovish on its outlook, the RBNZ took a decidedly hawkish tone overnight. Despite leaving rates unchanged, RBNZ Governor Graeme Wheeler noted that “with inflation pressures that have the potential to build up, given the capacity constraints in the economy, we will need to raise interest rates”.   Wheeler followed up those comments with a timeline, noting that “increases will likely be required next year”. The kiwi took off following the news, the NZDUSD exploding through resistance at the 200-Day Moving Average and matched August’s highs. The New Zealand Dollar also took ground from the Euro and British Pound.

Turning to the European session eyes were once again on Bank of England head Mark Carney, who testified in front of the Parliamentary Treasury Committee on inflation and the economic outlook for the UK.  Despite repeating his message that interest rate hikes are off the table until the unemployment rate declines further and inflation looks more robust, Carney did note “I am not afraid to raise interest rates, let’s be absolutely clear (“¦) I have no issue in doing that if it’s appropriate.” Sterling bulls seem to have jumped on those words and are buying the Pound. The Cable edged higher again overnight touching new 7-month highs, meanwhile the EURGBP remained offered as it grinds its way through historical support at lows from April and May.

The USDCAD is hovering at recent lows early this morning despite a better than expected weekly US Unemployment Claims. The Loonie is bid in early North American trade following the RBNZ’s signal that rate hikes are on the horizon. This has spurred bets that the Bank of Canada might be forced to follow the lead of its commodity-exporting peer sooner rather than later. The weekly Unemployment Claims number printed 292k, besting the Reuters consensus forecast of 330k. However morning markets seem to have taken the data in stride, choosing to focus overnight themes.

Further reading:

Gold Falls Back to Key Support

US jobless claims plunge to 292K, but data is skewed – dollar rises

David Starkey

David Starkey

David Starkey is a currency options dealer and market analyst for Cambridge Mercantile Group. A fascination with the everyday impact of globalization on society led David to pursue a degree in International Business from the University of Victoria. From there Forex was a natural fit. He has worked as a currency trader, risk manager, and hedging expert in both Canada as well as the United States for several non-bank brokers. Cambridge Mercantile Group.