Stronger Employment Boosts AUD
A much stronger than expected Australian employment report gave AUDUSD 70 pips of upside overnight. 44k new jobs were created against expectations of only 6.5k, and the unemployment rate held steady at 5.2% despite fears it would tick higher. Our Australian economics team sound a note of caution though – they point out that when averaged across several months jobs growth is still relatively soft and not strong enough to keep the unemployment rate as low as it currently is. The team sticks to its view that the RBA will cut 25 bp at each of its May and June meetings, thanks to what is expected to be a low enough CPI reading for Q1. Elsewhere Fed Vice-Chair Yellen’s much anticipated speech provided a fairly balanced assessment of where Fed policy is headed. She noted that “further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace, while a significant acceleration in the pace of recovery could call for an earlier beginning to the process of policy firming than the FOMC currently anticipates.” For a renowned FOMC dove, this shift to a more balanced stance is remarkable, although we note that the possibility of further easing has not been completely taken off the table. USDJPY continues to look a little firmer, although the pair was largely indifferent to Yellen’s remarks. Growing confidence that the BoJ will indeed deliver further easing at its next Board meeting on April 27 is behind the better tone. Political pressure is more visible than ever (witness the DPJ’s request to meet four BoJ Board members for “an exchange of opinions”, just days after the PM called for an anti-deflation panel to be set up), press speculation is intensifying, and the Nikkei’s recent retreat will simply enhance the sense of urgency to act. We certainly see scope for BoJ action on April 27, but with various press reports already flagging a JPY5-10 trn boost for the APP, it may ultimately take JPY10 trn plus a removal of the maturity limit on JGB purchases and perhaps an extension of the APP to mid-2013 to really surprise markets. Our three-month target of 85 remains intact, with further BoJ easing superimposed upon what we expect to be a steady Fed policy stance. Today Fed officials Dudley, Lockhart, Plosser, Kocherlakota and Raskin are also due to make an appearance.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank