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Australian Dollar Hit Hard

Pepperstone UUIIFXBR
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The Australian dollar dropped precipitously on the news that the Unemployment Rate had jumped from 6.0% to 6.4% yesterday. The unemployment rate was expected to hold steady at 6.0%, but instead jumped 0.4%, seasonally adjusted. The number of employed fell by 300, rather than the anticipated 13,500 increase. The unemployment rate is now the highest it has been since mid-2002 – higher even than during the depths of the GFC.

While the headline figure was bad, not everything about the employment report was negative. The loss of jobs was centred on part-time employment, which dropped by 14,800 people. Full-time employment actually increased by 14,500 people and the participation rate rose 0.1% to 64.8%. Nevertheless, the market reaction to the news saw a fall of just under one cent in the AUD, indicating that overall the data print was considered a negative shock.

The RBA Statement on Monetary Policy, just released, noted that the rise in unemployment may be partly related to a change in the survey due to sample rotation. The RBA also lowered this year’s GDP and underlying inflation forecasts by 0.25% to 2.5% and 2.25% respectively, with the removal of the Carbon Tax one major reason for the drop in CPI measures. The RBA noted that significant slack was likely to remain in the labour market, with the unemployment rate to stay elevated for several years as mining investment and fiscal contraction take effect on the economy.

The ECB Press Conference and rate decision was also out Thursday, with all three ECB policy rates held unchanged there was little surprise for traders. Draghi reiterated previous assessments of a moderate and uneven recovery, and expressed assurance that TLTRO’s would assist in the recovery process. The meeting turned out to be underwhelming in terms of new information, volatility and direction with the Euro finishing the day slightly lower at around 1.3360.

Similarly, the Bank of England held rates steady at 0.50% despite strong house price growth and a recent uptick in inflation – this was as expected by economists and again failed to generate a strong directional move in the Pound.

Canadian employment data is still to be released later today, with expectations that the unemployment rate falls by 0.1% to 7.0% on strong employment growth. The Unemployment rate has been falling from a peak of 8.7% during the GFC, but the trend has been levelling off in recent months. It may be up to geopolitical tensions to spark larger directional moves in markets at the moment, with US President Obama announcing overnight the authorisation for airstrikes in Iraq, and Russia retaliating against Western counterparts by implementing sanctions on Australia.

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