Talking Points

Aussie Dollar Weakness After Soft Jobs Data Likely to be Short-Lived
Yen Gains as Japanese Stocks Fall, NZ Dollar Rallies on Hawkish RBNZ
US Dollar Looks to Jobless Claims Figures to Guide Fed “Taper” Bets

The Australian Dollar sank against the majors in overnight trade after Augusts’ Employment report proved deeply disappointing. The report showed the economy shed 10,800 jobs from the prior month, disappointing economists’ calls for a 10,000 increase. The unemployment rate rose to 5.8 percent as expected but the participation rate unexpected declined to 65.0 percent, the lowest since January 2007. This suggests that in addition to layoffs, some frustrated job-seekers gave up looking for employment altogether and dropped out of the labor force.

The Aussie selloff following the dismal jobs print likely reflects speculation that a weaker labor market will spur the RBA to rethink the shift to a neutral monetary policy stance telegraphed at this month’s rate decision and lower the benchmark lending rate further. That seems like something of an over-reach however. RBA Governor Glenn Stevens explicitly said that labor markets were likely to remain lackluster over the coming one to two years and the decision to keep rates unchanged in September was made on that basis, meaning it will probably take more than one month’s disappointing employment number to force an about-face on the central bank’s posture. With that in mind, today’s downswing may struggle to find follow-through and we remain long AUDUSD.

The New Zealand Dollar outperformed after the RBNZ interest rate decision, where the central bank said while it expects to remain on hold in 2013, interest rate hikes “will likely be required next year”. The Japanese Yen likewise advanced, tracking a drop in the benchmark Nikkei 225 stock index as risk aversion encouraged an unwinding of carry trades funded in the perennially low-yielding currency. The soft tone may have followed from July’s lackluster Machine Orders figures released before the opening bell in Asia. The report revealed a flat month-on-month reading, falling short of median forecasts calling for a 2.4 percent increase.

The European economic calendar is fairly quiet once again, shifting the spotlight to the US docket. The weekly Jobless Claims data set is in focus, with expectations calling for a slight pickup on both initial and continuing applications for unemployment benefits. Traders continue to filter US economic news-flow through the prism of Fed “taper” speculation. While some kind of a cutback in asset purchases seems overwhelmingly likely at next week’s FOMC meeting after policymakers’ copious efforts to telegraph as much over recent months, the way forward thereafter is uncertain. That means soft data outcomes that argue against a sustained stimulus reduction cycle through the year-end are likely to weigh on the US Dollar, and vice versa.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

21:00

NZD

RBNZ Interest Rate Decision

2.50%