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Weaker Data Accelerates Selloff in Risk FX

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Top Stories

  • Australian labor data misses markedly, puts RBA hike on hold
  • EZ Finland approves Portugal bailout
  • Nikkei off -1.50% Europe lower -.98%
  • Oil at $98.25/bbl
  • Gold below $1500 at $1495/oz. last

Overnight Eco

  • AUD Employment Change -22.1K vs. 17.6K eyed
  • AUD Unemployment Rate 4.9% vs. 4.9%
  • JPY Economy Watchers Sentiment 28.3 vs. 24.3
  • JPY Current Account .75T vs. 1.02T
  • JPY Prelim Machine Tool Orders y/y 32.3%
  • NZD Business NZ Manufacturing Index 51.5vs. 50.2
  • EUR Industrial Production m/m -0.2% vs. 0.4% eyed
  • GBP Industrial Production m/m 0.3% vs. 0.9%
  • GBP Manufacturing Production m/m 0.2% vs. 0.3%

Event Risk on Tap

  • CAD NHPI m/m expected at
  • USD Core Retail Sales m/m expected at
  • USD PPI m/m expected at
  • USD Retail Sales m/m expected at
  • USD Unemployment Claims expected at
  • USD Core PPI m/m expected at
  • USD Business Inventories m/m expected at
  • USD Natural Gas Storage expected at

Price Action

  • USD/JPY quiet near 81.00
  • AUD/USD falls through 1.06 before recovering after weak labor data
  • GBP/USD drops through 1.6300 on weak IP/MP data
  • EUR/USD below 1.4200 as sov. debt concerns weigh

Further selloff in commodities and softer than forecast economic data kept risk FX on the back foot throughout the early morning European trade with EUR/USD slipping below 1.4200, Aussie breaking under 1.0600 and cable tumbling through the 1.6300 figure. The economic news disappointed across the board with Australian employment numbers positing a big miss and both UK and EZ Industrial Production coming in much weaker than expected.

In Australia, the employment data missed its mark badly printing at -22.1K versus 17.6K eyed. The number of full time jobs contracted by -49.1K while part time employment increased 26.9K. The participation rate slipped as well to 65.6% from 65.8% the month prior. This was the second monthly contraction in the labor force this year after nearly two years of uninterrupted gains. The news suggests that demand for labor may be is starting to wane as the combination of high interest rates and record strength of the Australian dollar curb demand in the country's service and manufacturing sectors. Indeed, policymakers are becoming concerned about a two speed economy, with resource rich Western Australia still booming while growth in the rest of the country lags.

As we noted earlier, "Today's surprisingly negative employment numbers put an end to any speculation of another rate increase by the RBA at its upcoming meeting in June. The central bank may want to pause for a material period of time before considering any further tightening measures which could weigh on the Aussie over the next several months. The unit has seen a near parabolic rise as risk flows and the G-10 leading interest rate have pushed it through the 1.10 barrier last week. However, with the prospect of any additional rate hikes looking increasingly more remote, the Aussie could begin to drift back towards parity as momentum traders lose interest. In the near term, the shorts will likely try to test the 1.0500 barrier if risk aversion flows accelerate as the day progresses."

Meanwhile in UK the IP/MP numbers also printed below forecast with IP coming in at 0.3% versus 0.9% forecast, and this after contracting -1.2% the month prior. The data indicates that the much vaunted UK Industrial sector is slowing down, putting in doubt any speculation that the BOE will move on rates despite an inflation rate that remains well above target. We noted yesterday that UK economy remains in a fragile state and could easily tip into a recession if it experiences a simultaneous tightening of fiscal and monetary policy. Today's weak numbers from the industrial sector confirm that thesis.

In Europe the story was similar with EZ IP unexpectedly contracting at -0.2% versus 0.4% eyed as output slowed sharply in Germany and Italy and declined in France. The numbers may rebound in April, but if they don't, the data would then suggest that higher exchange rates and energy costs are starting to have a material impact on demand and will force analysts to pare down their optimistic growth estimates for EZ core in H2 of this year.

In North America today focus will turn to the PPI and Retail Sales data with markets anticipating relatively flat results on both numbers. Unless the data prints well outside of consensus it is unlikely to have much impact on currency trade. Sentiment remains very negative towards risk and EUR/USD continues to struggle despite the latest positive news that Finland will approve the Portugal bailout. At this point the market has concluded that the problems with the periphery cannot be solved with stop gap measures and the selling in EUR/USD is unlikely to stop until traders get some clarity form the Eco Fin meeting. In the meantime the shorts may target the 1.4100 in US session if risk unwind continues as the day proceeds.

FX Upcoming

Currency GMT EST Release Expected Prior
CAD 12:30 8:30 NHPI m/m 0.4%
USD 12:30 8:30 Core Retail Sales m/m 0.8%
USD 12:30 8:30 PPI m/m 0.7%
USD 12:30 8:30 Retail Sales m/m
USD 12:30 8:30 Unemployment Claims 0.4%
USD 12:30 8:30 Core PPI m/m 0.3%
USD 14:00 10:00 Business Inventories m/m 0.5%
USD 14:30 10:30 Natural Gas Storage

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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