Brief Summary:

  • The U.S. delivered strong employment growth in June with 288,000 jobs added in the month. The data caps three months of strong gains.
  • Australian employment data will be released tomorrow at 11:30am. Market consensus is for 12,300 new jobs after a slight give up last month. The unemployment rate is expected to tick up to 5.9%.
  • The Bank of England will meet tomorrow night for its monthly monetary policy meeting. No change in policy is expected but officials have recently suggested that the first interest rate rise may be on the horizon. 

 

AUD trimmed

Last Thursday, Glenn Stevens, Governor of the Reserve Bank of Australia, had his axe out in Tasmania. Unlike some in the executive however, his target was not heritage listed forest but the high AUD. In a speech delivered at The Econometric Society Australasian Meeting and the Australian Conference of Economists Stevens voiced, more strongly than in the monetary policy statement, his view on the currency, “let me be clear, again, that the exchange rate remains high by historical standards. There is little doubt that significant parts of the trade-exposed sectors still find it quite ‘uncomfortable’”. Of particular note was his specification that, “most measurements would say it is overvalued, and not by just a few cents”, and, “we think that investors are underestimating the likelihood of a significant fall in the Australian dollar at some point.”

This was enough to get sellers in the market into gear. His comments on the currency drove more than a half-percent free-fall in AUDUSD. The pair had touched a high of 0.9505 only the night before after the RBA decision to hold interest rates. Data in the following days reinforced the sell-off, although the AUD again found its feet in the data void of the new week. Without a serious change in the official monetary policy outlook, like a move back to an easing bias, the AUD will likely remain supported in the current market.

USD

09-07-14aThe U.S. trading week was cut short by July 4th celebrations on Friday. U.S. employment data was therefore released a day early on Thursday night. The data continued the strong progress of the labour market with Non-Farm Payrolls, the monthly measure of job creation, growing by 288,000; the third 200 thousand plus month in a row. The unemployment rate also fell to 6.1% from 6.3% in May.

When considering the Federal Reserve is now focused on other broader measures of the labour market the report is more mixed. The good news, the number of long-term unemployed declined by 293,000, a solid improvement. The bad, the number of people working part-time for economic reasons increased by 275,000. Overall, the data suggest a continuation of the status quo and FX responded in turn.

EUR & GBP

09-07-14b 09-07-14c

 

Chris Chandler

 

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