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Risk on for Aussie, Risk off for Euro

Last updated 2/11/2010 4:54 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Australian employment blows out expecations as pressures rises on RBA
• EU summit appears to have reached a deal on Greece
• Equities up in both Asia and Europe as risk flows return
• Oil at $74.80/bbl
• Gold firmer at $ 1080/oz.

Overnight Eco

• AUD MI Inflation Expectations 3.2% vs. 3.5%
• AUD Employment Change blows out numbers at 52.7K vs. 15.1
• AUD Unemployment Rate 5.3% vs. 5.6%
• NZD Business NZ Manufacturing Index 52.0 vs. 53.0
• CHF CPI 1.0% vs. 0.3%

Event Risk on Tap

• USD Unemployment Claims expected at 458K
• USD Business Inventories expected at 0.4%

Price Action

• USD/JPY breaks 90.00 to the upside but stalls
• AUD/USD blows through levels and now within reach of .8900 as eco data supports
• GBP/USD weakest of the lot as 1.5600 breaks after yesterdays disapointing Inflation report
• EUR/USD firmer but 1.3800 caps as traders await details of deal on Greece

A mixed night of trade in FX with the Greek issue continuing to dominate the flows in EUR/USD, but risk appetite increasing considerably in Asia Pacific as Australian and Chinese data show a return to torrid growth in the region. Australian employment data blew out market estimates printing at 52.7K vs. 15.1K expected as the unemployment rate declined to 5.3% from 5.6% projected.

The surge in job growth was the largest monthly increase in more than 3 years while the jobless rate was at its lowest level since February 2009. The news puts pressure on the RBA to raise rates further after the central bank’s surprising pause at last month’s meeting.  Australian policymakers continue to be cautious as signs of deceleration in the rate of recovery appear across the globe, but the country remains the best performing economy in the G20 and is the strongest candidate for further tightening measures in the near term. The Aussie, rallied a full cent to .8890 in the aftermath of the news and if the risk flows remain supportive could recapture the .9000 figure   before the end of the week as interest rate differentials will once again attract carry trade flows.

The path of the Australian economy remains highly dependent on Chinese demand and to that end, today news that Chinese bank lending grew at a rapid rate  in January helped soothe fears that Chinese economy was slowing down, Chinese new loans rose by 18.5% of the full-year lending target in January, underpinning rapid growth in the money supply, while wholesale prices rose more than expected, according to the data. Although the CPI figures showed a moderating of inflation as they rose 1.5% vs. 1.9% the month prior, the pace of credit growth in China is clearly unsustainable and  Chinese monetary officials will need to act decisively  quite soon to curb the real estate bubbles forming in the country’s urban areas. Ultimately it is this coming wave of Chinese monetary tightening that concerns Australian policymakers and will therefore result in only gradual rate hikes from the RBA throughout 2010.

Meanwhile in Europe  speculation still centered on the actual details of the rescue package  for Greece as a formal announcement was expected at 15:45 GMT. The European policymakers are walking a very fine line between producing a financially meaningful  package without triggering fears of a moral hazard as other Southern European economies face similar fiscal problems. After rising to a high of 1.3800 in Asia, the euro drifted lower throughout the morning European trade as enthusiasm for the deal began to fade. The markets continue to be concerned that the fiscal deficit problems remain a structural issue for the monetary union with no effective mechanism for their resolution. Therefore we would not surprised if the EUR/USD actually sold  off on any news of a deal as fears of wider contagion linger. Nevertheless, for the time being the pair has managed to find  support at the 1.3550 level and is unlikely to  move  much lower unless a fresh crisis arises.      

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.