AUD/USD – Aussie Tumbles After Weak Employment Data

The improving Australian dollar hit a brick wall on Thursday, as the currency dropped sharply following a dismal Employment Change release. AUD/USD dropped close to 100 points on the news, but has partially recovered. In the European session, the pair is trading in the mid-0.89 range. In the US, retail sales data weakened in January, while Unemployment Claims disappointed, coming in above the estimate.

The Aussie took a tumble following dismal employment numbers on Thursday. Employment Change posted its second straight decline, with a reading of -3.7 thousand. This figure was an improvement over the December reading of -22.6 thousand, but was nonetheless way off the estimate of +15.3 thousand. There was more grim news from the unemployment rate, which hit 6.0%, above the estimate of 5.9%. This was the highest level in over 10 years. Consumer confidence in Australia continues to weaken, as Westpac Consumer Sentiment dipped 3.7% in January, its third straight decline and fourth in the past five readings. A decrease in consumer confidence likely means less consumer spending, which is critical for economic growth. However, Australia did post strong business confidence and inflation numbers earlier in the week.

In the US, news from the employment front was not much better. Unemployment Claims rose to 337 thousand, above the estimate of 331 thousand. This reading comes on the heels of JOLTS Job Openings, which also missed market expectations. Core Retail Sales dropped to 0.0%, a nine-month low. The estimate stood at 0.1%. Retail Sales brought no relief, slipping to -0.4%, short of the estimate of 0.0%. Will the US dollar take a hit after these dismal releases?

Federal Reserve chair Janet Yellen didn’t generate much excitement in the markets when she testified before Congress on Tuesday. She said that the Fed plans to continue trimming QE, provided that the employment picture continues to improve and inflation rises. She acknowledged that even though the unemployment rate has improved steadily, the recovery in the labor market is far from complete and the Fed plans to keep interest rates at ultra-low levels. Yellen, who took over as Fed chair on February 1, is expected to continue the policies of her predecessor, Bernard Bernanke.

With the US economy pointed in the right direction, the Federal Reserve has implemented two tapers of $10 billion to the QE scheme, reducing QE to $65 billion each month. We could see another taper when the Fed meets in March. Former Fed chair Bernard Bernanke took his time making the decision, and the taper train will be hard to stop, barring any unexpected downturns in the economy. The Fed plans to wind down QE in $10 billion installments, completing the process by the end of 2014.

AUD/USD for Thursday, February 13, 2014

AUD/USD February 13 at 14:35 GMT

AUD/USD 0.8969 H: 0.9032 L: 0.8928

AUD/USD Technical

• AUD/USD posted sharp losses early in the Asian session, but has partially recovered.
• 0.8893 is providing support. It is not a strong line and could face pressure during the day. This is followed by stronger support at 0.8735.
• 0.9000, a key line, has switched to resistance as the Aussie trades at lower levels. The next resistance line is at 0.9119.
• Current range: 0.8893 to 0.9000

Further levels in both directions:

• Below: 0.8893, 0.8735, 0.8658 and 0.8516
• Above: 0.9000, 0.9119, 0.9229, 0.9361 and 0.9466

OANDA’s Open Positions Ratio

AUD/USD ratio is pointing to gains in long positions in Thursday trading. This is not consistent with what we are seeing from the pair, as the Australian dollar has lost ground against the greenback. AUD/USD ratio is made up of a substantial majority of long positions, reflecting a trader bias towards the Aussie rebounding and resuming its rally.

The Australian dollar has lost ground and dropped below the key 0.9000 level. The pair has edged higher early in the North American session.

AUD/USD Fundamentals

• 00:30 Australian Employment Change. Estimate +15.3 K. Actual -3.7K.
• 00:30 Australian Unemployment Rate. Estimate 5.9%. Actual 6.0%.
• 13:30 US Core Retail Sales. Estimate 0.1%. Actual 0.0%.
• 13:30 US Retail Sales. Estimate 0.0%. Actual -0.4%.
• 13:30 US Unemployment Claims. Estimate  331K. Actual 339K
• 15:00 US Business Inventories. Estimate 0.4%.
• 15:30 US Natural Gas Storage. Estimate -234B.
• 18:01 US 30-year Bond Auction.

*Key releases are highlighted in bold

*All release times are GMT

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