GBP pairs are recovering smartly as it looks from where I sit, that the market uncertainty level on the Scottish referendum is fading fast after new polling results counter the previous polls showing the "yes" vote gaining momentum.
Implied options volatility is still very elevated, but the rates picture at the front end of the curve and spreads on long gilts suggest to me that the market isn’t pricing much in outside of perhaps placing far out-of-the-money hedges in GBP.
GBPUSD is looking more and more like a sell on as the action takes us back toward 1.6250/1.6300, while EURGBP downside might be the way to look for further GBP relief. I’ll have more on the Scottish referendum later today.
Australia saw an off-the-charts strength in payrolls growth in August that was almost twice as strong as the highest reading over the past 10 years. As well, the participation rate jumped higher, though the payrolls number was so strong that the unemployment rate still dropped all the way to 6.1%.
This data point is not in fitting with other data from Australia nor the steady drop in consumer confidence, so I am taking this release with more than a grain of salt until we gather at least another couple of months of data.
A Bloomberg article cites Australia’s statistics bureau, which said that “a rotation in its survey group affected today’s figures.” As well, over 80% of the growth was in part-time positions. All of this makes it risky to predict mean reversion at the September payrolls (the normal pattern in the past is that spikes mean revert over subsequent months) as this could be a step-wise change due to a new data collection regime. Hard to tell, the only thing for sure is that this single data point doesn’t tell us much.
AUDUSD
The strong payrolls number had short rates in Australia jumping higher and AUD rallying overnight. The first key area where the action is settling is around the 200-day moving average near 0.9180, but the ultimate structural resistance will be the old head and shoulders neckline that was taken out in recent days. While resistance may be tested, I continue to prefer the downside unless we close above 0.9250.
New Zealand’s central bank issued a neutral statement that further brought down forward expectations for policy tightening and saw NZD weaker across the board. The statement also prominently mentioned the exchange rate and a desire to see it lower: “Its current level remains unjustified and unsustainable. We expect further depreciation, which should be reinforced as monetary policy in the US begins to normalise."
A massive fall in dairy prices and signs of a cooling housing market are wind at RBNZ Governor Graeme Wheeler’s back. NZDUSD traded to a new low since February as the slide picked up pace.
Looking ahead
SEK is in focus today on the latest consumer price index and employment releases (for August) as headline inflation has been bumping along near 0% year-on-year on the headline and the core level was 0.6% in July after flirting with 0% earlier this year.
SEK will be vulnerable to very weak data and could rally on a stronger-than-expected data point – in any case, something needs to give technically in EURSEK soon, as the pair hasn’t closed outside of the tight 9.15-9.25 range since mid-July.
Economic Data Highlights
New Zealand’s central bank issued a neutral statement that further brought down forward expectations for policy tightening and saw NZD weaker across the board. The statement also prominently mentioned the exchange rate and a desire to see it lower: “Its current level remains unjustified and unsustainable. We expect further depreciation, which should be reinforced as monetary policy in the US begins to normalise."
A massive fall in dairy prices and signs of a cooling housing market are wind at RBNZ Governor Graeme Wheeler’s back. NZDUSD traded to a new low since February as the slide picked up pace.
Looking ahead
SEK is in focus today on the latest consumer price index and employment releases (for August) as headline inflation has been bumping along near 0% year-on-year on the headline and the core level was 0.6% in July after flirting with 0% earlier this year.
SEK will be vulnerable to very weak data and could rally on a stronger-than-expected data point – in any case, something needs to give technically in EURSEK soon, as the pair hasn’t closed outside of the tight 9.15-9.25 range since mid-July.
Economic Data Highlights
- New Zealand RBNZ left official cash rate unchanged at 3.50% as expected
- UK Aug. RICS House Price Balance out at 40% vs. 47% expected and 48% in Jul.
- China Aug. PPI out at -1.2% YoY vs. -1.1% expected and -0.9% in Jul.
- China Aug. CPI out at +2.0% YoY vs. +2.2% expected and +2.3% in Jul.
- Australia Aug. Employment Change out at +121k vs. +15k expected and -4.1k in Jul.
- Australia Aug. Unemployment Rate out at 6.1% vs. 6.3% expected and 6.4% in Jul.
- Sweden Aug. CPI (0730)
- Sweden Aug. Unemployment Rate (0730)
- Sweden Aug. Average House Prices (0730)
- US Weekly Initial Jobless Claims (1230)
- Euro Zone ECB’s Draghi to speak (1900)
- New Zealand Aug. BusinessNZ Manufacturing PMI (2230)