AUD Dips Below Parity
The Australian dollar dipped below parity for the first time this year despite China’s weekend RRR cut. Ongoing concerns about Chinese growth continue to weigh on AUDUSD, and political stalemate in Greece is not helping either as the prospect of a re-election continues to undermine global risk appetite. Amid all the negativity however, Friday’s Canadian employment report served up a positive surprise. The 58.2k rise in April employment dwarfed the 10.0k consensus call, all the more impressive in the light of the strong gain in the full-time component (43.9k) and the even larger 82.3k jump recorded in March. The unemployment rate ticked up to 7.3% in April from 7.2% in March, with the labour force expanding 72.5k as more people sought work. Though our base case still assumes no policy rate changes in Canada this year, the Canadian dollar remains our favoured play among the commodity currencies given the less dovish bent of the Bank of Canada evident in last month’s policy statement. In contrast, the RBA has more easing to do amid the clear shift towards a tighter fiscal-looser monetary policy regime in Australia and the slower growth momentum in China. Granted, Australia’s exports to China have remained resilient thus far, to the point where the share of Australia’s exports to China hit a record high of 29% in Q1. However, this highlights the risks for the Australian dollar going forward, with our China economics team having cut its y/y GDP growth estimates to 8.0% from 8.4% for Q2, and to 8.2% from 8.5% for 2012 as a whole. EURUSD will remain sensitive to political developments in Greece. President Papoulias began a first round of talks with party leaders on Sunday with the aim of forming a unity government, however no breakthroughs were made. Although talks are scheduled to continue at 1630GMT on Monday it seems to us that a fresh election on either June 10 or June 17 still seems the most likely outcome. Meanwhile, the latest opinion polls show the SYRIZA party, which is staunchly opposed to the current bailout deal, still boasting the highest support. Elsewhere, USDJPY continues to search for fresh direction, though it did derive some support from the better than expected University of Michigan consumer sentiment print of 77.8 for May – the highest result since January 2008.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank