All that the forex investor requires is some consistent intraday volatility — it provides opportunity. Overnight, Aussie trading is a prime example and certainly beats the 12-18 point EUR ranges that North America has been exposed to throughout the World Cup finals. Sessions like those have certainly poisoned market participation and enthusiasm.
In general, the mighty dollar has been trading weaker against a basket of major currencies, pressured by yesterday’s Federal Open Market Committee minutes that suggest the Fed is in no rush to tighten U.S. monetary policy. The minutes shed no new light on the timing of a potential interest rate increase. In fact, a few investors have interpreted the Fed’s minutes as being a tad more dovish, and enough to catch a few more hawks offside.
Aussie Longs Caught Offside
Investors will always gravitate toward currency movements and a rise in Australia’s unemployment rate, combined with a smaller-than-expected China trade surplus, provided the overnight catalyst for a selloff in the Aussie dollar.
At best, Australian jobs data is mixed, with an employment change of +15.9k beating consensus, but as per usual, it’s the details that generally kill. The jobless rate rose to a four-month high of +6.0%, due in part to a rising participation rate. However, digging deeper, the numbers reveal a fall of -3.9k in the full-time component along with a rise of +19.7k in part-time work, leading to a lower increase in overall hours of worked (15.1M versus 33.5M in May). On the surface, it’s not a bad report, just a wrong mixture and reason as to why investors holding long AUD carry positions are again reassessing their commitment to that trade.
It’s only natural for Australia to wonder how its largest trading partner is faring. Last night, China’s June trade surplus was up +16%, year-over-year, but still came in shy of consensus at $31.6B. Exports were up over +7%, which was well below the +10% estimate, while trade to the U.S., European Union, and Japan were all up in the single digits. Shipments in the first half of the year of crude oil, iron ore, and copper were up +10%, +19%, and +26%, respectively. Officials attributed this month’s surplus to their fiscal policy measures, and also forecast that third-quarter exports growth will top second-quarter levels (Chinese second-quarter gross domestic product data will be released next week). The markets interpreted the data as another soft Chinese report.
Up until now, the Reserve Bank of Australia (RBA) has been prepping the market very well. The RBA stands in contrast to Governor Mark Carney at the Bank of England (BoE) who seems determined to try to stamp his own type of approval with the Old Lady. The RBA had already expected Aussie unemployment to rise above the +6%, and combined with the recent improvement of lead indicators of the labor market, it implies that there will be enough job growth to keep the Aussie unemployment rate gravitating toward that psychological +6%. A rise in employment and a steady trend in unemployment last month Down Under is evidence enough that the Aussie labor market has stabilized. Despite some recent evidence of a loss of economic momentum (softer retail sales, building approvals, consumer confidence and a high AUD), there are still signs that “Australia’s great rebalancing act is underway.” Low interest rates (relatively) are supporting the housing market — their prices are also climbing. Although key data maybe down on a year-over-year basis it still comes out ahead. One thing’s for sure, the market should expect the RBA to continue to jawbone the AUD lower ($0.9370).
Investors Eye the Old Lady
The BoE is front and center this morning as investor focus falls on the bank’s latest rate announcement. Many expect no change from Carney, an outcome that should leave the pound (£1.7118) largely unchanged. Like its major foes, sterling has been capitalizing on the USD softness and not on its own strengths. The U.K.’s trade in goods deficit widened in May (£-9.2B versus -£8.8B) because of unusually high levels of import activity, namely aircraft. No matter, the rise continues to highlight that the U.K.’s export and manufacturing sectors still require further support and development. This is a reasonable excuse for most central bankers as to state why interest rates are what they are.
Sterling has been a good earner for the longs of late, and has even weathered a succession of weaker-than-expected U.K. data. But next week’s data releases offer a bigger risk to those long GBP positions. Both the consumer-price index and average earnings will be announced and these reports do have a habit of tripping up the longs.
Similarly, the EUR has been led astray by the dollar, rallying to a one-week high of €1.3651; however, the euro bears can thank a poor run of European industrial production data to squeeze some of the life out of the 18-member unit. Italian industrial production figures for May fell -1.2% on the month against +0.1% expected. In France, the eurozone’s second-largest economy, production fell -1.7% against a -0.2% forecast.
Fed Remains Concerned over Investor Risk Appetite 
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