Currency Traders Seem Confused On Thursday Morning
The Aussie tumbled this morning after a mixed employment data reports. The market isn’t quite sure how to view Australia’s labour market report for July, as a surprisingly large jump in the unemployment rate competes with encouraging jobs growth and a growing labour force set against lower than expected population growth. The unemployment rate jumped to 6.3% from a revised 6.1%, which is a far cry from the 6.1% the market was expecting, and the economy added an impressive 38.5K jobs over the month. The Aussie fell to 0.7332 giving up 24 points.
Across the ocean the tiny island of New Zealand saw its currency move in the opposite direction with the kiwi climbing to 0.6542 adding 29 points. The kiwi has also been under pressure as slumping global milk prices prompted the Reserve Bank to embark on looser monetary policy in June, and this week’s latest decline caused local economists to downgrade their expectations for Fonterra Cooperative Group’s forecast payout to farmers to below $4 per kilogram of milk solids.
The Japanese yen is trading at multi-year lows versus the US dollar and sterling. Its depreciation has been more pronounced over the past year, spurred by the Bank of Japan’s (BoJ) additional stimulus in October 2014, when the central bank surprised the market by announcing an expansion of its asset purchase program to an annual pace of 80 trillion yen. The market has been skeptical for good reasons. Japan’s economy has struggled to make meaningful improvements since it bounced back from recession late last year, leading the BoJ to push back the timeframe of meeting its inflation target from the fiscal year 2015 to 2016.
With additional BoJ stimulus unlikely in the foreseeable future, we believe that the trend of yen weakness, which has been closely aligned to the central bank’s quantitative and qualitative easing policies, has run its course in the near term. Financial Times this morning offered this interesting graphic that I decided to share with you.