Key Overnight Developments
• Australian Unemployment Rate Rises, Jobs Gain Misses Estimates
• Japan’s GDP Report Shows Deflation Rate Doubled in Fourth Quarter
Critical Levels
The Euro corrected lower in overnight trade, giving up 0.1 percent to the US Dollar. The British Pound was little changed as prices consolidated in a choppy 60-pip range below 1.50 to the greenback. We remain short EURUSD at 1.4881 and GBPUSD at 1.5765.
Asia Session Highlights
Australia’s Unemployment Rate rose to 5.3 percent in February from a revised 5.2 percent in the previous month as the economy added a meager 400 jobs amid expectations of a 15,000 increase. The details of the report revealed a gain of 11,400 full-time jobs coupled with a nearly-equivalent declined in part-time employment, essentially implying that about eleven thousand workers transitioned to longer work shifts. Indeed, a measure of hours worked surged 2.4 percent, the most in over two decades. On balance, this is not as terrible of an outcome as the headline figures would suggest. Indeed, a move to full-time hours implies workers’ take-home pay will increase, which should help encourage spending and bode well for consumption and by extension for overall economic growth. Still, the outcome marked the smallest cumulative increase in employment in six months and the first increase in the jobless rate since September of last year. This coupled with news China’s Consumer Price Index added 2.7 percent in February, putting inflation at a 16-month high and implying Beijing may step up efforts to slow the buoyant Asian economy before it overheats, could hint at the emergence of significant headwinds for the Australian economy in the months ahead. China is Australia’s largest export partner and a key driver of the mining boom that has helped support the antipodean nation’s relative resilience amid the global economic downturn of the past two years.
Japan’s Gross Domestic Product figures were revised downward, revealing the economy expanded 0.9 percent in the fourth quarter versus the 1.1 percent gain reported in early estimates. The annualized growth rate was slashed to 3.8 percent from the significantly higher 4.6 percent preliminary figure. The outcome owed to a smaller-than-expected increase in capital investment and government spending. Exports remained the primary driver of expansion, accounting for 0.7 percent of the overall increase. Perhaps most disturbingly, the GDP Deflator fell 0.8 percent, revealing that prices fell at twice the rate of the previous quarter and seemingly assuring that the Bank of Japan will stick with its “extremely accommodative” posture and may even loosen monetary conditions further. This suggests the cost of borrowing in Japan will continue to decline after the interest rate on three-month Yen loans fell below that of comparable ones denominated in US Dollars for the first since August last week. This bodes ill for the Japanese currency as investors shift FX carry trade portfolios away from short-USD exposure and toward a short-JPY bias.
Related Articles: New Zealand Dollar Tumbles after RBNZ Commentary Leans Towards Measured Tightening
Euro Session: What to Expect
The interest rate decision from the Swiss National Bank headlines the economic calendar in European hours. While a rate hike is surely out of the question, the markets will be keen to see if SNB chief Philipp Hildebrand and company will further relax their posture on currency market intervention to depress the value of the Swiss Franc – a policy put in place to combat deflation. At the previous meeting, the central bank changed their wording to say they will act to “prevent any excessive appreciation of the Swiss Franc against the Euro,” as opposed to preventing “any appreciation” as noted in previous statements. Any revisions to the bank’s growth and inflation estimates may also prove significant: exports account for over half of the mountain nation’s economy and most of its trading partners are Euro Zone member states, meaning that economic recovery in Switzerland is highly dependent on a rebound in the currency bloc. The region is off to a bumpy start in 2010 after GDP growth slowed in the fourth quarter while a sovereign debt crisis emerged in southern Europe and investors will be interested to see how the SNB sees this playing out for their own economy.
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