WWM - Analytics

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    FOREX: Australian Employment Underwhelms

    Australia's January employment data declined by -7.9k startling a market that was expecting the string of positive surprises to extend for the fourth consecutive month. The employment rate rose to 6.0% which was worse than 5.8% forecasts while participation rate rose to 65.2%. Full time employment was hit hardest falling by -40.6k while part time employment picked up a bit of the slack as it rose by 32.7k.

    • Employment Data {Source: Bloomberg}AU_employmentData_021716.png

    The weaker print, while concerning, should probably be viewed as a correction when juxtaposed with the robust job growth over the past 3 months. That said, this report raises the possibility that the impact of record low rates and weaker currency might be waning which, when coupled with the threat posed by China, should be cause for worry for the RBA. Further rate cuts might be an option to resuscitate the domestic economy but there still remains the thorny issue of how to deal with the under performance of the worlds' second largest economy.

    • Unemployment Rate {Source: Bloomberg}AU_employmentRate_021716.png
    • Change in employment {Source: Bloomberg}AU_EmploymentChange_021716.png
    • AUD/USD - Weekly
      Aussie, which was trading just below moderate resistance at 0.7180 ahead of the release, immediately spiked lower to 0.7133 before stabilizing and retracing some of its losses. A confluence of dynamic trend lines, both ascending and descending, and 26-week MA are ensconced within the range between 0.7180 / 0.7200. As such, this presents a critical hurdle that needs to be breached on a weekly basis if the AUD has designs on extending its recovery from January lows. China remains the key determinant for AUD direction but if, and its a big if, there are no more shocks and given that the FED's rate hike schedule appears murky, then a decisive break could see the Aussie test 0.7380 and ultimately 0.7450 on a multi-week basis. Conversely, further deterioration in Chinese growth prospects could see another leg lower as support levels at 0.7000, 0.6900 and 0.6820 come into focus. Essentially, any move higher still has to viewed as corrective in nature with a breach of 0.6800 signaling a resumption of the long term down trend.(click to enlarge)audusd_021716_w.png

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