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Aussie Decouples From Risk

Last updated 3/14/2012 6:21 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Dollar rally continues in Asia post FOMC
• UK claimant count disappoints
• Nikkei 1.53% Europe up 0.96%
• OIl at $108.61/bbl
• Gold at $1667/oz.

Overnight Eco

• AUD Westpac Consumer Confidence (MAR) -5.0% vs. 4.2%
• JPY BSI Large Manufacturing (QoQ) (1Q) -7.3 vs. 1.3
• JPY Industrial Production (MoM) (JAN F) 1.9% vs. 2.1%
• CHF ZEW Survey (Expectations) (MAR) n/a
• EUR Euro-Zone Consumer Price Index (MoM) (FEB) n/a
• EUR Euro-Zone Industrial Production s.a. (MoM) (JAN) n/a
• GBP Jobless Claims Change (FEB) 7.2K vs. 6.5K
• GBP Claimant Count Rate (FEB) 1.4% vs. 1.9%

Event Risk on Tap

• USD Import Price Index (MoM) (FEB) expected at 0.5%

Price Action

• USD/JPY continues its march higher towards 83.50 as US rates inch up
• AUD/USD hobbled at 1.0500 by weak Aussie data
• GBP/USD stymied at 1.5700 on weaker data
• EUR/USD finds support at 1.3050

Dollar remained dominant in Asian and early European trade today rising against most of the majors as yesterday’s string US economic data, relatively positive assessment from the FOMC and rising US rates all aided the unit. The greenback hit yet another year to date high against the yen with USD/JPY climbing to 83.35 while the EUR/USD dropped to 1.3050 with many shorts now eyeing the key 1.3000 support level as the day progresses.

However, perhaps the weakest major against the greenback was the Aussie which continued to slide lower below the 1.0500 figure despite strong stock market performance in both Asia and Europe. Since last Friday’s NFPs the AUD/USD has completely decoupled from risk appetite refusing to rally even as global equities continue to march higher. Currency traders are clearly becoming concerned about the slowdown in business activity in Asia Pacific region and are beginning to factor in further rate cuts from the RBA.

Today economic data from Down Under offered little solace to Aussie bulls with consumer sentiment slipping by -5.0% from 4.2% the month prior. The bulk of the decline was caused by 6.8 per cent fall in the confidence for those who hold a mortgage or those paying off a mortgage on their house as rates climbed in the wake of RBA decision last week to remain stationary. The mood of the consumer may improve if the central bank decides to lower rates at next month’s meeting, but demand remains tepid and the downward pressure on Aussie will likely remain in place as it starts to lose its luster as the darling of the carry trade.

Elsewhere in UK the employment data disappointed the market capping a rally in cable at the 1.5740 level. UK claimant count printed a bit higher at 7.2K versus 6.5K eyed while average earning index grew at a paltry 1.4% versus 1.9% expected. This was the slowest pace of wage growth in nearly 2 years indicating that the rebound in UK economy may be limited at best as consumer spending remains constrained. Cable was the strongest performed against the buck ahead of the release, but has since traded back towards the 1.5700 level as the data took the steam out of the rally.

In North America today the focus will be on Ben Bernanke’s speech at 14:00GMT with market looking for further confirmation of Fed’s optimism. However US policymaker face a new dilemma. In order for the US recovery to continue they need to maintain rates at current low levels, but any acknowledgement of the improvement in the US economy sends rates on the long end of the curve higher, blunting the stimulative impact of the Fed’s policy. Chairman Bernanke is therefore likely to be circumspect today but with pro-dollar momentum still in place the greenback could see further gains as the day progresses with 83.50 in view for USD/JPY while euro shorts test support at the 1.3000 level. 

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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.