Strong AUD Jobs Data
AUDUSD continued its move higher after a strong employment report. 38.9k jobs were added in May (0.0 cons). This marks the 3rd consecutive monthly print above consensus and the first 3-month jobs gain in over a year. Importantly, the gains were driven by full-time positions (+46k). UBS economics believes the improving trend is likely to keep the RBA on hold, at least until the next CPI print, absent a global crisis. The dollar continued to trade on a soft note overnight, ahead of Bernanke’s testimony. FOMC Vice-Chair Yellen sounded notably dovish, saying recent economic data leaves scope for more easing. The San Francisco Fed’s Williams said the Fed must stand ready to do even more if needed. A downgraded economic assessment might be served up by the Chairman, but our US economics team does not foresee any further Fed easing this month. Euro bulls were initially disappointed by the yesterday’s ECB’s decision to leave rates unchanged and comments from Draghi which did not indicate the ECB was any closer to delivering rate cuts or another 3-year LTRO. Draghi did acknowledge the “downside risks” for the economy and the fact that the rate decision was not unanimous, but he was quick to stress that nominal rates are “very low”, negative real rates persist, the full effects of the previous 3-year LTRO have not been observed yet, and many financial stress indicators have improved. Draghi summed up by noting the ECB did not possess any “silver bullet” to solve the crisis. Yet, EURUSD bounced, as Draghi’s suggestion that a “financial markets union” might be a viable short-term option apparently fostered hopes of at least some incremental progress heading into the EU Summit on June 28-29. While Draghi said the ESM cannot directly recapitalise banks under current statutes, the issue is still ‘live’ as a unanimous decision by the ESM board of governors could conceivably change this. EURUSD extended its gains on the back of press reports indicating that European officials are pondering a bailout programme for Spain that would focus on the banks and critically, only impose “very limited conditionality” without any heavy-handed austerity measures. The policy spotlight now shifts to the BoE. We are with the majority looking for a ‘no change’ verdict this month, but a QE expansion still looks likely by August. We think a weaker than expected services PMI report (consensus 52.4 for May vs 53.3 in April) could bring this forward. A ‘no change’ decision should make the BoE meeting a non-event though, with no policy statement subsequently offered in this context.. Swiss reserve numbers should also be watched out for today, with investors looking for any evidence of FX intervention and diversification into other currencies.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank