AUD and JPY both fell against USD in the Asian session Thursday after surprises from their respective economies. In Australia’s case it was a large miss on employment figures, while for Japan it was an increase to its short-term asset purchase programme.
Australia’s employment change missed forecasts by a large margin with 27k jobs lost in the month compared with flat expectations. The details suggest the data were worse than the headline with 33.5k jobs lost in the full-time sector (giving back virtually all of the downwardly-revised jobs created in the sector last month) with a mere 6.6k jobs added in the part-time sector. The unemployment rate rose to 5.2 percent from 5.1 percent, in line with expectations, while a small reduction in the total workforce saw the participation rate slipping to 65.2 percent from a revised 65.4 percent.
AUD’s reaction to the dismal report was as expected, a quick 40 point gap lower versus the US dollar and then a gradual grind even lower. Interest rate expectations of additional RBA cuts were revived post-data with OIS markets now pricing a 70 percent chance of a 25bp cut at the next meeting (Aug. 7) and a full 100bp of easing in the next 12 months (90bp pre-data).
In other Australian data, consumer inflation expectations rebounded sharply in July, jumping to 3.3 percent after June’s surprise dip to 2.3 percent. Prior to both data releases, RBA Deputy Governor Lowe commented that the firm AUD has helped balance the nation’s economic expansion, and it is difficult to argue that it is fundamentally overvalued, despite foreign inflows into the bond market pushing up the local currency.
A couple of central bank meetings also hit the headlines in Asia. The Bank of Korea surprised with its first rate cut in more than 3 years, trimming 25bp off the base rate to 3.0 percent. In the ensuing press conference the central bank chief highlighted that the decision was not unanimous and was aimed at countering the short-term cyclical economic downturn. The BOK foresees “that the domestic economy will sustain a negative output gap for a considerable time going forward, due mostly to the increase in euro area risks and the sluggish economies of its major trading partners”. Certainly that outlook is not going to change soon so seems there will be more cuts to come….
Separately, the Bank of Japan also surprised the majority of forecasters with a ¥5 tln increase in its buying of short-term securities (T-bills) under the asset purchase programme. Growth forecasts for 2012/13 were trimmed to 2.2 percent from 2.3 percent previously while 2013/14 projections were unchanged at 1.7 percent. Core inflation forecast for 2012/13 were also trimmed to 0.2 percent from 0.3 percent with 2013/14 unchanged at 0.7 percent. JGB futures rallied 12 ticks to a 9-year high after the announced and the JPY weakened to 79.97 versus the US dollar from 79.54 beforehand.
Meanwhile, the FOMC minutes were the highlight of an otherwise slow data day Wednesday, and were sprinkled with “few”, “several” but not “many” words. A “few” Fed members saw further policy measures as necessary to promote satisfactory growth and ensure the inflation rate stays on target while “several” others wanted to wait until the economy gets worse and/or inflation is too far below target. On the growth front, views centred on a slower trajectory of growth for the current year and reduced expectations for further out. There was also some discussion on the need to find “new ways” to help the economy. With the view that any QE hopes for the end-July meeting have diminished, risk was generally taken off the table and Wall St eased lower, also pressured by further Q2 earnings misses.
In other data, the US trade deficit narrowed to $48.7 bln from a revised $50.6 bln with a rise in exports and small decline in imports contributing. Wholesale inventories were in line with forecasts in May at +0.3 percent m/m.
Data Highlights
US May Trade Balance out at -$48.7 bln vs. -$48.6 bln expected and revised -$50.6 bln prior
US May Wholesale Inventories out at +0.3% m/m, as expected vs. revised +0.5% prior
AU Jul. Consumer Inflation Expectations out at 3.3% vs. 2.3% prior
NZ Jul. ANZ Consumer Confidence out at +4.4% m/m vs. -7.1% prior
AU Jun. Employment Change out at -27.0k vs. flat expected and revised 27.8k prior
AU Jun. Unemployment Rate out at 5.2%, as expected vs. 5.1% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
GE Wholesale Prices (0600)
Sweden Avg. House Prices (0730)
Sweden CPI (0730)
EU ECB Monthly Report – July (0800)
EU Euro-zone Industrial Production (0900)
CA New Housing Price Index (1230)
US Import Price Index (1230)
US Initial Jobless Claims (1230)
US Bloomberg Consumer Comfort Index (1345)
US Monthly Budget Statement (1800)
Andrew Robinson,
SAXO BANK