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Australian Employment Boosts Rally in Risk

Last updated 10/13/2011 3:27 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Australian employment data beat expectations helping to push Aussie above the 1.0200 level in early morning  Asian trade, but the rally in risk fizzled in the wake of weaker than  forecast Chinese Trade data and increased tensions between China and US. Australia created 20,400 new jobs in September - far better than the median forecast of 10,000 as the country’s unemployment also dipped to 5.2% versus 5.3% eyed.  

This was the best job reading in four months, suggesting that the economy Down Under remains robust despite concerns over global contraction in growth. Nevertheless,  as many analysts have pointed out, the pace  of job growth in Australia has lowed markedly this year with the economy only generating 40K new jobs year to date versus 281K new jobs in 2010. Still today’s news should remove any expectations of  an RBA rate cut before the end of this year as the central bank will likely remain in a neutral mode as it continue to monitor global demand.  

On a less positive note Chinese trade balance narrowed in September to $14.6B from 17.8B the month prior and 17.1B eyed. Exports slowed considerably rising only 17.1% versus 24.5% in August while imports also missed their mark increasing 20.3% versus 30.2% in August. The data shows a clear slowdown in global demand but the key question forward is whether this is just a hiccup or the start of a more ominous secular trend as we approach 2012.

The simmering conflict between China and US regrading the passage of currency manipulation bill in the Senate have not helped matters. PBOC has guided USD/CNY higher for the second day in a row in a clear defiance of the Senate action, and although almost no one expects the bill to become law, increasing tensions between the two  economic superpowers may begin to weigh on investor sentiment if the situation escalates.    

For now capital markets are giving the benefit of doubt to risk assets as fears of a double dip recession are fading from the investment horizon but we believe that further forward progress may be difficult as near term sentiment has become too bullish. With little economic data on the calendar in the European session   currency markets will turn their attention to the upcoming Italian auction. For now 1.3850 in EUR/USD and 1.2050 in AUD/USD remain points of resistance and unless equities show further strength risk FX is likely to pause as the  day proceeds.   

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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.