aud fundamentals

Australian Dollar Forecast Dims on Disappointing Jobs Report

Friday, 16 January 2009 23:20:32 GMT  |  David Rodriguez, Quantitative Analyst

The Australian Dollar was among the worst G10 performers to end the week’s currency trading, as an outright rout in global commodity prices led to similar declines in the risk-sensitive commodity currency. An ostensibly bullish headline result in the week’s employment report obscured the fact that the domestic jobs markets saw sharp deterioration through the month of December.

Australian Dollar Forecast Dims on Disappointing Employment Report

Fundamental Outlook for Australian Dollar: Bearish

- Australian Dollar drops on financial deleveraging flows
- Sharp tumble in commodity prices hurts demand for Australian Dollar
- Australian jobs report shows clear weakness in domestic hiring

The Australian Dollar was among the worst G10 performers to end the week’s currency trading, as an outright rout in global commodity prices led to similar declines in the risk-sensitive commodity currency. An ostensibly bullish headline result in the week’s employment report obscured the fact that the domestic jobs markets saw sharp deterioration through the month of December. The Australian economy lost 1,200 jobs on the month—far fewer than the consensus forecast for a 20,000 payrolls decline. Yet full-time employment fell a substantial 43,900, while part-time jobs jumped by 42,800. The unemployment rate ticked higher, and outlook for consumption took a clear turn for the worse. Sentiment for the Australian Dollar remains bearish, and the currency may continue lower absent a material improvement in global commodity prices.

Upcoming Australian economic event risk is unlikely to force major volatility in the domestic currency. Instead, the AUD will continue to track movements in financial risk sentiment—especially as it relates to commodity markets. According to our recent correlation studies,  the Australian dollar maintains an especially strong link to raw materials prices. Thus it will be important to watch general mood across markets in order to gauge shifts in sentiment for the antipodean currency. Otherwise, we will look to market reactions to upcoming New Zealand Consumer Price Index data; the New Zealand and Australian dollars remain highly correlated, and any big moves in the NZD could translate into sympathetic reactions out of the Aussie.   - DR

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