Opening Comment 03.11
Employment data for February, came in much worse than expected in Australia, and this has opened a round of profit taking, with the single currency looking like it could be setting up for some across the board weakness. Meanwhile, the RBNZ has come out with their decision on rates, and as widely expected, the central bank has left rates on hold at 2.5%. However, it was a more dovish than expected statement that has been generating some Kiwi weakness, after policy makers said that the economic recovery would remain “subdued” and that policy tightening may be less aggressive than in prior cycles.
Nevertheless, even in light of these negative Aussie and Kiwi developments, the commodity currencies only track marginally lower on the day and we suspect that some solid data out from China has helped to mitigate any negative sentiment. There has been a very strong demand to buy these higher yielding currencies on any form of a dip, with the yield differentials simply too attractive to ignore in a recovering global economy. However, these traders should proceed with caution, as we contend that the Australian economy is at risk for some disappointment ahead. Today’s worse than expected employment data is significant in our opinion, as it is the first time in several months where this data has come in below expectation, to perhaps warn of some more weakness ahead.
Elsewhere, Japanese GDP was released, and came in slightly softer than consensus estimates. This has not hurt the Yen, which stands out as the only currency with gains against the buck in early Thursday trade.
Looking ahead, the only release worth mention in European trade comes in the form of the European Central Bank Monthly Report at 10:00GMT. The SNB is then out into to North American trade at 13:00GMT, with their decision on rates. It is widely expected that the central bank will leave rates on hold at 0.25%. US equity futures point to a lower open, while gold trades flat and oil tracks lower by some 0.60%.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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