The first concert I ever went to was to see Men At Work- an Australian band that was basically a one-hit wonder. However, men at work is exactly what it is going on in Australia today, as better than expected employment change figures have rallied the Aussie to within striking distance of parity with the US dollar and all-time highs.
Across the pond, both the ECB and the BOE left rates unchanged and maintained current policy. While this is not a surprise, some were hoping that the BOE would be closer to removing monetary stimulus which at this point seems unlikely. The fact that they didn’t increase asset purchases is also a good sign that they are not ready to join the race to the bottom—yet. The minutes of the BOE rate policy meeting will give a more in-depth view of opinion. The ECB also said that they are not ready to ease either.
In the US, initial jobless claims came in slightly better than expected, but still within a negative range. Tomorrow’s NFP number is sure to be a market mover.
Meanwhile, weak Dollars keep driving stock and commodities markets higher with gold over $1350 and oil at $83.75.
In the forex market:
Aussie (AUD): The Aussie is the big winner this morning as employment figures came in better than expected. The Australian economy added 49.5K jobs vs. an expectation of 20K, and the unemployment rate stayed steady at 5.1%. This catapulted the Aussie to all-time highs vs. the Dollar settling in just over .99 vs. USD, on penny away from parity. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is mostly higher rallying in tandem with the Aussie. Economic stability plus higher yields and exports driven by commodities in the growing Pacific region make for stronger currencies.
Loonie (CAD): The Loonie is mostly lower despite higher oil prices as building permits came in way worse than expected, posting the largest decline in nearly 18-months. Permits were down 9.2% vs. an expectation of a 2% decline.
Euro (EUR): The Euro is mostly higher as the ECB left rates unchanged and decided not to join in monetary easing and participate in the global race to the bottom. In addition, German industrial production figures came in better than expected. The Euro is back to 1.40 vs. USD, the highest it has been in nearly 9 months. (Click chart to enlarge)
Pound (GBP): The BOE also maintained current rate policy and neither expanded nor contracted its asset purchase plan. Like Germany, UK industrial and manufacturing production figures came in better than expected. The Pound breached the 1.60 level vs. USD earlier this morning, the highest level it has been in nearly 3 months. (Click chart to enlarge)
Dollar (USD): Once again the Dollar is getting spanked and its weakness is driving world markets as the threat of QE2 still looms heavily. If this keeps up, Big Ben may not have to ease monetary policy as it will have been done for him. If markets keep rallying and the Dollar keeps weakening, we may begin to see some of the inflation Ben and the Fed are praying for. However, should we get QE2 on top of these already low Dollar levels, (mostly likely before the November elections as politicians love higher markets) this could backfire badly as Fed credibility will be shot.
Yen (JPY): Once again the Yen is showing strength as the Vice Finance Minister backed away from intervention ahead of this weekend’s G-7 meeting. This has emboldened the market to continue to push Yen higher despite all of the BOJ monetary actions. Market 1 BOJ 0. Yen is at new 15-year highs vs. USD at 82.30. (Click chart to enlarge)
There are many “significant” levels being reached today for currencies trading against the US dollar. I am now officially a broken record, harping on Dollar weakness daily. Euro at 1.40. Pound at 1.60. Aussie and Loonie are both 1 penny away from parity.
The currency market is bound to be a major topic of conversation at this weekend’s G-7 meeting. China just recently rebuked the EU to back-off calls for Yuan strength. We know how they feel about the US. Japan is going to the meeting hat-in-hand, having tried (and failed) to intervene. Meanwhile the US is going to maintain that they haven’t done anything as are “shocked by the Dollar’s weakness as the US remains committed to a strong Dollar”. How the US contingent keeps from bursting out in laughter is anyone’s guess.
So there is some potential for volatility over the weekend, and tomorrow’s NFP number is likely to move the markets. Right now the most important data in the US is the jobs data, so any improvement will be welcome.
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