The Australian economy continued to add jobs at pace in December

AUD pushes higher to the next resistance level

Market Comments:

A mixed session for currency markets overnight with early USD losses generally scaled back onto the close. GBP was the major out-performer on the day, buoyed by upbeat comments on the economic outlook from BOE’s Sentence initially, and Barker later on, the former saying the BOE’s QE program has been a success, with enough being done on this front and now be the time for adopting a “wait and see” approach. The comments helped pull GBPUSD up to 1.63 with additional impetus noted from NIESR estimates that the UK economy grew 0.3% in December (though for the full year annualized growth was the lowest since 1921). GBP buying was also noted linked to M&A activity and dividend payments.

EUR performance was a bit more patchy, with various headlines contributing to pressure in the single bloc currency. Firstly a profit-warning from SocGen took the shine off the EURUSD as it approached 1.46 and a disappointing print on German GDP numbers did not help. Greece factors added to the pressure with again with CDS spreads blowing out again amid ECB talk of restructuring of its debt while Moody’s came out and warned of the country’s economy heading into a “slow death” if it does not implement challenging fiscal reform measures. The rumour mill was also out in force suggesting Greece may make a voluntary exit from the Euro-zone though Greek PM Papandreou said he would not quit the zone or seek help from the IMF.

On the US front, the Fed’s Beige Book showed 10 of 12 Fed districts reporting an improvement in the economy, though the job market remained weak and activity suppressed but basing with the consumer still cautious. A hawkish US think-tank suggested the Fed may start raising rates at the June FOMC and may widen the Fed Fund band, and this contributed to an uptick in US bond yields which helped put the brakes on the dollar’s slide. On the more negative side, the US recorded a record $91.9 bln budget deficit in December, a sharp increase from the $52 bln recorded for the same month a year ago.

Asia’s attention was directly focused on Australian employment data this morning – and quite rightly so. The Australian juggernaut economy ploughed on in December adding a whopping 35.2k jobs in the month, accelerating from the upwardly-revised 31.4k in November, and dramatically above consensus estimates of a “mere” 10k. No doubt the nay-sayers will point to the fact that the majority of the jobs were added in the part-time sector (27.9k versus 7.3k full-time) but initial market sentiment chose to ignore this aspect. The unemployment rate eased back further to 5.5% from a revised 5.6% and again beat forecasts of 5.8%. Ahead of the data, markets were 70% priced in for a Fed rate hike but post-data are now 75% priced in for February and 100% priced in for March. AUD took off to the stars after the data, jumping a quick 40-50 points against the USD and a more marked response against the JPY. We’ve heard talk of large chunks of AUD bought in the high 0.92s yet we are not immediately aggressively higher. Maybe we face a small squeeze before we head back up again.

In prospect for today’s session we have Euro-zone industrial production ahead of the ECB’s non-decision on rates. As we mentioned yesterday, 1.00% rates will be maintained for many months and any discussion of rate hikes will likely be couched in phrases like "at some point" or "once conditions are ready", etc.). The bigger focus will likely be on any comments related to the developing/headline-grabbing situation in Greece and the ECB's stance on that. The ECB published a working paper in December that suggested it was unlikely for a member state to leave or be forced out of the monetary union. Still, the ECB will have plenty of questions to answer about Greece, where fiscal straits are dire enough that the IMF is sending a mission to Athens this week for discussing its situation. The press conference rather than the rate announcement is the more poignant event.

At the time of the press conference a slew of US data will hit the screens: import price index, advance retail sales and the weekly initial jobless claims. Later business inventories will be released.

Headlines – previous session

• US Dec. Monthly Budget out at -$91.9b vs. -$92b expected and -$51.8b prior
• NZ Nov. Building Permits out at 1.2% m/m vs. revised 10.7% prior
• JP Nov. Machine Orders out at -11.3% m/m, -20.5% y/y vs. +0.2%/-10.1% expected and -4.5%/-21% prior resp.
• JP Dec. Dom. Consumer Goods Prices out at +0.1% m/m/-3.9% y/y vs. flat/-3.9% expected and revised flat/-5.0% prior resp.
• AU Dec. Employment Change out at 35.2k vs. 10.0k expected and revised 31.4k prior
• AU Dec Unemployment Rate out at 5.5% vs. 5.8% expected and revised 5.6% prior
• Themes to watch – upcoming session
  (All times GMT)
• GE CPI (0700)
• EU Euro-zone Industrial Production (1000)
• EU ECB Rate Announcement (1245)
• US Import Price Index (1330)
• US Advance Retail Sales (1330)
• US Initial Jobless Claims (1330)
• EU ECB’s Trichet Press Conference (1330)
• US Business Inventories (1500)
• US IMF’s Strauss-Kahn’s Press Conference (1500)