Aussie Dollar Looks To Jobs For Inspiration

The Australian dollar traded in a reasonably tight range overnight with price action largely adhering to U.S. equity moves. The next key directive for the local unit is today’s jobs report, which is expected to show the Australian economy added 4,500 new jobs in December with the unemployment rate likely to have risen from 5.2% to 5.4%. We’ve seen a reluctance to break the upside of 105.8 and 106 U.S. cents and any significant deviation to the upside of estimates today will no doubt see these levels put to the test once again while set the inflection point needed for further gains. While a net 4,500 new jobs is conservative, it still may be a tad ambitious if we consider recent precursors such as the ANZ job ads earlier this week. To explore the downside we can see the 105.25/3 level is key, with a move below likely to encourage further downside momentum.

Markets are also gearing up for a series of economic reports from China, with GDP Industrial production, fixed asset investment and retail sales on tomorrow’s agenda.

At the time of writing, the dollar is buying 105.7 U.S. cents.

U.S. Markets
A hybrid of themes guided U.S. equities overnight with corporate earnings and debt ceiling concerns remaining prominent directives. Risk trends appeared to err on the side of caution with the greenback moderately higher against major counterparts, but there remained little conviction to spur any meaningful moves and high beta currencies such as the Aussie and Kiwi remained bid. Corporate earnings that beat estimates from banking heavyweight Goldman Sachs beat estimates, while JP Morgan’s were largely in line with expectations.

Data released overnight showed U.S. consumer prices were flat in December with the annual rate of inflation at 1.7% from a previous and expected 1.8%. Excluding the volatile food and energy components of the index, inflation grew at a yearly pace of 1.9%. Subdued inflation pressures is supportive the view the Fed will remain on the interest rate side lines for longer, with their threshold of 2.5% nowhere in sight.

Industrial production rose 0.3% in December, in line with estimates but down from 1% in December, while manufacturing production beat expectations with a 0.8% jump.

True to form, ‘modest’ appears to be the adjective of choice to describe U.S. economic growth according to the Fed’s Beige Book. The report which is anecdotal report of economic conditions in 12 U.S. districts continued to show only moderate improvement last month with auto sales and housing a bright spot, but most importantly little progress was seen in labor market conditions.

Across the Atlantic, euro zone Consumer prices rose 0.4% in December to represent 2.2% growth in annual terms. Core prices rose 1.5% on year. Both gauges were in line with consensus estimates.

Euro Consolidates
The Euro continued to ease across the board after last week’s solid performance, with the EUR/USD pair falling below the $1.33, while losing recent momentum seen against the Swiss franc.

It would appear markets have taken heed to a little jawboning from Eurogroup President and Luxembourg Prime Minister Jean-Claude Juncker, who said the Euro is “dangerously high.” Euro price action -- in part -- is reflecting relative stability in the region after an extended period of disorder across the periphery, and while this may appear positive, the repercussions of a stronger currency may hamper the export competitiveness of Europe’s largest economy, Germany. The fear of being caught short appears to have taken precedence over the fear of further disorder in the region and it’s apparent we’re seeing dissolution of Euro short positioning, which plagued markets intermittently throughout 2012.

At the time of writing, the Euro is buying $1.3290.