Australian, NZ Dollars Decline as Stocks Fall on China Slowdown Fears

Key Overnight Developments

• Australian, NZ Dollars Sold as Stocks Fall on China Slowdown Fears
• Japan’s FinMin Wins DPJ Leadership, Set to Become Prime Minister

Critical Levels



The Euro and the British Pound were little changed in the overnight session, with the single currency confined to a 40-pip range below 1.2190 while sterling oscillated above the 1.46 level to the US Dollar as markets braced for the upcoming US Nonfarm Payrolls report. We remain short EURUSD.

Asia Session Highlights



The Australian and New Zealand Dollars fell as most Asian stocks declined, sending the MSCI Asia Pacific regional benchmark index down 0.2 percent and weighing on the risk-linked currencies. Selling pressure emerged after the Codelco and Freeport-McMoran Copper & Gold Inc – the world’s largest copper producers – said China’s plans to slow its buoyant economy amid fears of asset bubbles and runaway inflation will weigh on demand for metals.

Japanese shares managed to hold up better than most of their Asian counterparts on news that Finance Minister Naoto Kan was elected as the new leader of the ruling Democratic Party of Japan following the resignation of Prime Minister Yukio Hatoyama earlier this week. The DPJ holds a majority in the lower house of parliament, allowing it to install Kan as the new prime minister. In a statement supporting his candidacy, Kan said he would work closely will the Bank of Japan to combat inflation and promised “sweeping revenue reform” to deal with the country’s gaping fiscal shortfall.

Euro Session: What to Expect



The second revision of Euro Zone Gross Domestic Product figures headlines the calendar, with expectations calling for a confirmation of initial estimates showing the economy added 0.2 percent in first quarter from the three months ending December 2009. Traders are likely to be far more interested in the components of growth than the headline figure amid fears that fiscal retrenchment will bring down economic recovery in the region.

In this regard, economists’ expectations don’t look promising, calling for private consumption and investment to decline 0.1 and 1.1 percent respectively while government spending rises 0.3 percent, hinting that the recovery remains dependent on stimulus. Indeed, the growth rate of public sector expenditures has far outpaced that of consumption or investment for the past two years.

Looking past European event risk, traders will hone in on US Employment figures set to cross the wires late into the session. Expectations call for nonfarm payrolls to rise 536,000 – the largest increase in nearly thirteen years – while the unemployment rate declines to 9.8 percent. If this proves to reassure financial markets that a firming US economy can shoulder the burden of pulling the world along the path of recovery even as China and EU put on the brakes, a broad rebound in risky assets may materialize.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com