Market Drivers for May 8, 2014
Europe and Asia
AUD: Employment 14.2K vs. 7.5K
CNY: Trade 18.5B vs. 15.2B
EUR: GE IP -0.5% vs. 0.2%
North America
GBP: MPC Meeting 07:00 AM
EUR: Rate 07:45 AM
EUR: ECB Presser 08:30 AM
USD: Weekly Jobless 08:30 AM
The Aussie was the star of the show in the currency market overnight as the unit pushed its way towards the .9400 figure on the back of better than expected Australian employment numbers and a strong Chinese Trade surplus report.
Australian employment registered its fourth consecutive monthly gain rising to 14.2K versus 7.5K eyed. The unemployment rate dropped to 5.8% from 5.9% expected and the labor force participation rate remained the same at 64.7%. All of the job gains came from full time employment, which was an unusual dynamic but nevertheless an overall positive for the Australian economy.
Over the past four months Australia has gained more than 106K jobs versus just 60K jobs in all of 2013. The ramp up in the labor force is likely to translate into better than expected growth in the second half of the year, especially since Chinese demand does not show any serious signs of deterioration for now.
The Chinese trade balance came in better than expected as well, rising to 18.6B versus 16.7B projected. Exports rose by 0.9% and imports increased as well to 0.8% indicating that growth in China remains robust and the PBOC is unlikely to engage in any additional stimulus for now.
The double whammy of upside surprises provided a serious boost for the Aussie which rose nearly 80 points off session lows as it churned its way towards the .9400 figure. The pair faces some serious resistance at the .9400-.9500 corridor and its recent rise will no doubt be viewed with concern by the RBA, but given the markedly improved fundamental background, the monetary authorities in Sydney will have a difficult time keeping policy accommodative if labor demand continues to strengthen. The Aussie will also benefit from the relative rate advantage for as long as the Fed continues to maintain its ultra low rate policy. For now, the pair remains capped at the .9400 level but a break above could put it on target towards the .9500 handle.
In the North American session, the focus will shift to the EUR/USD as all eyes will be on Mario Draghi for the ECB presser at 12:30 GMT. The market remains highly skeptical of any policy action from the ECB and has been pushing the euro higher all night long with the pair inching towards the 1.3950 level. Currency traders are in effect challenging the ECB policymakers to act rather than talk.
With US rates likely to remain low for a considerable amount of time, there is no pressure to buy dollars and thus the decline in the EUR/USD can only be orchestrated by ECB action. We are already beginning to see the negative signs of a high exchange rate on German Industrial production which has missed forecasts badly this month. With German manufacturing the absolute core of EZ growth, such developments must be a concern in Frankfurt. Yet if Mr. Draghi just provides words, the exchange rate problems could only exacerbate as market tries to push the EUR/USD through the 1.4000 level.