Aussie Dives On Job Data, Euro And Yen Consolidate

Australia dollar drops sharply in Asian session today on report of weaker-than-expected job data. The job market contracted by -5.5k in December comparing to expectation of 4.5k growth. The data series has been rather volatile with a pattern to oscillate from month to month between upbeat and downbeat. But even though November's upbeat data was revised further up from 13.9k to 17.1k, the two month combined total was disappointing due to December's contract. Unemployment rate also rose to 5.4% as expected. Recently released forward-looking ANZ job advertisements dropped for a tenth straight month in December, raising the concern that job markets will remain weak down under. And, unemployment could actually surpass RBA's projection of around 5.5% by mid year and prompt further rate cut from the central bank.

Technically, we'd maintain that AUD/USD's rally from last October is corrective in nature and should be limited below 1.0624 resistance. That is, reversal should be around the corner. Against Euro, EUR/AUD is bounded in a ranging pattern between 1.2159 and 2823 since last August and price actions would remain choppy. Nonetheless, an eventual upside breakout, that is Aussie weakness, is anticipated in medium term. Against yen, AUD/JPY is losing momentum ahead of a medium term long term projection level of 61.8% projection of 55.06 (2008 low) to 88.05 from 74.55 at 94.9. We would likely see some pull back in near term.
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Released overnight, the Fed Beige Book indicated that "economic activity has expanded" since the last report. All 12 districts described that they attained "either modest or moderate" growth while the job market was "mostly unchanged" but "hiring plans were more cautious for firms doing business in Europe or in the defense sector". Moreover, real estate sector and consumer spending showed improvement while the manufacturing sector remained mixed. It is noted also that New York and Philadelphia had "rebounded from the immediate impact of Hurricane Sandy".

Euro continues to consolidate against dollar and yen for the moment. ECB Executive Board member Asmussen said that a "mild recession" would be seen in Eurozone this year. And as of today, there is "no inflationary pressure". He pledged to act immediately if there are signs of increased inflationary pressure. He noted that ECB had taken a more prominent role in solving the debt crisis but warned not to "overstretch" ECB's mandate as that would lead to a loss of credibility. Another Executive Board member Coeure said that "ECB has been successful in easing market tensions using standard and non-standard tools". And market re-integration "will succeed only if it is supported by continued efforts by governments to bridge fiscal and competitiveness imbalances." And, "the underlying structural problems which relate to uncertainty about risk, whether in the form of counterparty, credit, liquidity or redenomination risk, need to be solved."

In Japan, prime Minister Abe said yesterday that the government will "choose someone who can appreciate my basic policies to beat deflation" to succeed Shirakawa as BoJ government after his term ends in April. And he emphasized the it must be a "person with firm determination and ability." An opposition party said that Abe shouldn't choose someone within BoJ and there would be no change in thinking. Chief Cabinet Secretary Suga said that they can't pass the nomination through both chambers of Diet "without help from opposition" indicating that they would consider views of opposition parties. As noted before, Yen would likely consolidate further ahead of next week's BoJ meeting where the central bank is expected to expand its stimulus program and double the inflation target to 2%.

Looking ahead, Swiss will release PPI in European session while ECB will release its monthly bulletin. From US, new residential construction, jobless claims and Philly Fed survey would be featured.