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Australian Dollar’s fall – Was it just the employment numbers?

January 16, 2014 in Australia & New Zealand

Today’s weaker than expected employment data brought a strong fall for the Aussie. AUD/USD fell to 0.8796 before going into a sideways mode. AUD/JPY fell to 92.17 after failing at 93.33.

Australian employment data

Today’s released data showed that the employment numbers fell by 22,600 in December 2013 after the rise of 15,400 in December. The results were much weaker than even the consensus for an addition of 7,500 employed persons.

The latest seasonally adjusted data as per the Australian Bureau of Statistics is as follows:

  • Employment decreased 22,600 to 11,629,500. Full-time employment decreased 31,600 to 8,067,700 and part-time employment increased 9,000 to 3,561,800.
  • Unemployment increased 8,000 (1.1%) to 722,000. The number of unemployed persons looking for full-time work increased 13,300 to 532,400 and the number of unemployed persons looking for part-time work decreased 5,300 to 189,600.
  • The unemployment rate increased 0.1 points to 5.8%, based on the estimates before rounding off.
  • The participation rate decreased 0.2 points to at 64.6%.
  • Aggregate monthly hours worked increased 0.6 million hours to 1,634.0 million hours.

Note about subsequent revisions: The data was revised subsequently as follows:

  • Total employment change: Revised to 23,000 from previously reported 22,600.
  • Full-time employment change: Revised to 32,100 from the previously reported 31,600.
  • Part-time employment change: Revised to 9,100 from previously reported 9,000.

AUD/USD breaks the key support

AUD/USD’s fall resulted in a decisive break of the key support level of 0.8848. The pair had tried to break this support level during the week of December 15, 2013 but had found support immediately to bounce back to 0.9086. The pair could not break above the psychological ranges of 0.9000 to enter the 0.9100 territory, however.

AUD/USD weekly chart with break of support level

With a pure price-action perspective a support may come at or above 0.8770. This level had proved to be a strong support during August 2010. However, any break below this may extend the fall towards 0.8633.

What is the overall trend?

AUD/USD historical chart for past 12 years

The above chart shows the price-action of AUD/USD since August 2001 i.e. for over past 12 years. It is clear that the pair has been in an overall long-term uptrend. A deep consolidation had come during the Lehman crisis in 2008 but the subsequent recovery had overcome the temporary bearish sentiments to take the pair to a new high of 1.1080 during the week of July 25, 2011.

Considering the overall uptrend the recent fall can only be considered as a consolidation from a price-action perspective.

A review of the fundamentals

The driving force for the fall was not just the unemployment  numbers. AUD/USD had been in a very volatile sideways mode for close to 3 years till June 2013. The pair had broken below that sideways channel when the central back had cut down the interest rate from 2.75% to 2.50% on June 8, 2013. The bearish sentiments which had come into the picture, since then, could not be overcome.

The recent economic data

Aussie’s strength has a very strong positive correlation with Chinese economic data. The recent data from China has not been very encouraging.

Recent economic data from China

Consumer price Index: The year on year change in the Chinese CPI saw an unexpected drop in December 2013. The CPI drop was 3.0% as compared to December 2012 data while the markets were expecting a change to 2.7%.

Producer Price Index: The year on year change remained same at -1.4% but even when there was no drop the data remains negative in general and was also weaker than the consensus i.e. -1.3%.

Exports and Imports: December 2013 witnessed a major hit on Chinese exports. The year on year change was 4.3% against the corresponding month of 2012’s 12.7%. Not only that but it was also less than 4.9% which the economists were expecting. The imports improved to 8.3% from 5.3% on year-on-year basis and that made the picture of the trade balance a bit messy by causing a drop from 33.801 billion to 25.600 billion U.S. dollars.

What else on fundamental levels?

Australian exports

A rapid growth was seen in the Australian resource exports in 2013. It is attributed to the investments in production capacities but should also be attributed to the continued depreciation of the Aussie which is helping the exports.

Commodity prices

Though on SDR (Special Drawing Rights) terms i.e. in the terms of an artificial currency used by International Monetary Fund (IMF) and is defined as the basket of national currencies, the index of commodity prices declined by 4% during 2013 but in terms of the Australian dollar the index has risen by 11.7% during the past year. This certainly goes in favor of the Aussie.

What can be expected from the Australian dollar?

Some more weakness is certainly expected if the pair breaks below 0.8770. However, as mentioned above, a strong support should come at or above 0.8633. This level does not only represent one of the key support level of July 2010 but the psychological support of approaching 0.8500 ranges should start coming into the picture here. If the near-term bearish sentiments still continue and AUD/USD manages a break of 0.8633 expected support then a very strong support would be expected in the range of 0.8316 to 0.8360. The first hint for bearish sentiments for a longer -term would only start coming into the picture if the pair fails the support of 0.8316 but in that case also a confirmation of the same would only come if a break below 0.8067/0.8060 takes place. Till such time even when the near-term outlook is bearish the longer-term outlook stays bullish for the pair.

For your ease, the short URL of this post is http://bit.ly/aussie-review.

You may also wish to keep an eye on the weekly updated AUD/USD outlook.

Main Highlights of The RBA Meeting’s Minutes

September 17, 2013 in Australia & New Zealand

Review of Economic conditions of the major trading partner – Overall Average

Highlights:

  • Overall growth of the major trading partners in the second quarter as been in line with the average of the last decade.
  • China: GDP Growth in the second quarter was close to the target of 7.6%. Demand for property continued to rice but at a slower pace. Strong growth in infrastructure management.
  • Japan: Economic activities were slower than expected during the second quarter but the overall growth has been relatively strong during the first 6 months of 2013.
  • U.S.: The pace of the economic expansion has been moderate. Housing market strengthened further and employment has been rising moderately since the beginning of the year.
  • Euro zone: After 6 quarters of negative growth the second quarter of 2013 saw a positive growth. Overall consumer and business sentiments improved slightly and unemployment levels have been steady.
  • Export prices: Spot prices for iron ore had increased, consistent with further growth in Chinese steel production. Crude oil and base metals prices had also risen over the past month.

Domestic Economic Conditions of Australia – Mixed

Highlights

  • It’s expected that the economic growth was slightly below the trend. National account are scheduled to be released the day after the Board meeting.
  • Household consumption growth appeared to have been below the average of recent years.
  • Overall business investment seems to have increased, especially in buildings and structures in the mining sector. In other areas the investments have been soft.
  • Exports growth remained relatively strong.
  • Mining profits had increased in the June quarter owing in part to higher prices for iron ore.
  • Non-mining profits had dipped in the quarter.
  • Businesses still appeared averse to taking on risks associated with new investment projects.
  • Iron ore exports had continued to grow strongly in the June quarter.
  • Coal export volumes were also higher than the past year but coal prices had declined. M
  • Rural exports remained at a high level, following generally good rainfall in recent years.
  • Indicators suggested that growth of household consumption in the June quarter had been below average.
  • The retail sales growth had been only modest in recent months.
  • Sales of motor vehicles to households declined in July, after a strong growth in the second quarter.
  • consumer sentiment had moved higher and were a little above long-run average levels.
  • Housing market improved because of the lower interest rates.
  • Labor market conditions remained somewhat subdued and employment had been little changed since earlier in the year, while the population had continued to expand, resulting in a decline in the employment-to-population ratio and a gradual rise in the unemployment rate.
  • There were further signs that wage growth had eased over the year.
  • The Australian banking system remained in a relatively sound position.

Source: http://www.rba.gov.au

Minutes of the RBA from its December 4 Meeting

December 18, 2012 in Australia & New Zealand

The RBA released today the minutes of its Monetary Policy Meeting held on December 4, 2012.

Important observations

The bank reviewed the international economic situation and noted that conditions had turned marginally positive. Growth had stabilised in the Chinese economy due to easing fiscal policy and higher infrastructure spending. In the United States better consumer sentiment, moderate growth in employment and an improving housing market combined to support economic activity. On the other hand, the Japanese economy exhibited export weakness and a contraction in economic growth. Conditions in the Euro area worsened further. Globally commodity prices remained more or less flat over the period after the last meeting.

Domestic economic conditions were marked by slowing consumption growth, modest expansion in employment, a slight recovery in residential construction sector, slowing investments in the mining sector, and slowing growth in business credit overall. The case of wage growth during the second quarter fell with surveys indicating further pressures on wage rates in the near future. Also, leading indicators and available information pointed to a softening labour demand, and therefore muted employment growth in future months.

The members decided to lower the cash rate from 3.25% to 3% based on the following:

  • “The information on labour costs and softening labour market conditions suggested that the inflation outlook still afforded the Board some scope to provide additional support to demand.
  • Further confirmation that the peak in resource sector investment was near, and that the short-term outlook for non-resource investment remained subdued, indicated that there was a case for the Board to provide that support.”

 

Australian Economic Outlook – Monetary Policy Statement of November 9th

November 9, 2012 in Australia & New Zealand

Reserve Bank of Australia’s monetary policy statement of November 9th indicates slightly weaker outlook for the growth of Australian economy than what was indicated during the monetary policy statement of August 2012. The expected GDP growth during the Australian financial year of July 1st, 2012 to June 30th, 2013 is estimated to be slightly less than 2.75%. The outlook presented August statement had indicated the GDP growth to be close to 3%.

The estimated GDP growth is less than the average global GDP growth which is expected to be 3.25% during 2012 and 3.5% during 2013.

Australian Economic trend of various sectors:

Household Consumption:

Overall household consumption is Australia showed a strong growth during the first half of the year. This includes the sales of motor vehicles for personal use which grew in recent months.

Housing:

Though there has been a continuous decline in the housing sector during the first half of the year but the prospects are there for the improvement.  The prospects for the improvements are mainly due to the lower interest rates and are visible by the rise in the new residential housing projects approvals and also the rise in housing prices and auction approvals.

Australian Employment:

Though there was an improvement in the employment situation during the first half of 2012 but there has been a decline during the recent months. The employment in the construction industry witnessed a strong fall. The growth in the wages have been average but much below the stronger trend during 2005 to 2008.

Mining and Resources Sector:

The outlook for Mining sector which is one of the most important part of Australian economy is slightly bearish. There was a drastic decline in the prices of Australian Iron ore and coking coal exports during July and August because of Chinese demand. There has been some recovery in the Iron ore prices but the coking coal prices continue to decline.

There has been a rise in the investment in the mining sector and hence on one side the supply situation has improved but on the other side the slowing down of Chinese demand has caused the prices to decline. Further decline in the prices is expected.

The combination of the above may see slowing down in the mining sector.

Australian Inflation Trend:

The underlying inflation during the quarter of September is estimated to be close to 0.75% and the same over the year 2012 is estimated to be near 2.50%. These make the underlying inflation higher by 0.50% than what it was 3 months back.

Australian Employment Data and AUD/USD

October 11, 2012 in Australia & New Zealand

Just now the Australian Employment data was released and AUD/USD jumped very strongly.

Australian Employment – Key Facts:

Employment Change:

The employment change in August was -9.1K and the consensus for September 2012 was for 3.75K but the data released was much stronger and showed a rise in the employment by 14.5K.

Australian Unemployment Rate:

While the numbers of employed people rose more than expected, the unemployment rate rose more than expected. The previous unemployment rate was 5.1% and it was expected to rise to 5.3% but the new data showed a rise in Australian unemployment to 5.4%.

Conflicting Employment Data:

The reason of the conflicting data is very logical. The rate of increase in Australian population was more than the increase in jobs.

Australian Population:

The growth rate of Australian population had seen a decline but since 2010 it has been running flat. The population growth in the 2011, as on March 2011 was 1.4%. By September 2012 the growth rate in the population has increased to 1.5%. It is a small increase but ultimately it is an increase in the annual population growth rate. The main reason behind this increase is the increase in migration. The annual overseas migration levels had increased by 18% as on March 2012 as compared to the year ending on March 2011. In fact the annual figures of overseas migration as on March 31, 2011 were the lowest in the previous 4 years.

The rise in employed people was 10,750 and that was lower than employable people with the growth of population.

How this data will reflect in the economy

On one side the increase in employment increases the consumer spending and hence boost the overall economy but as a whole we need to consider that the overall unemployment rate ahs gone up and that is not good. The jobs are not able to keep pace with the growth of employable people.

Where does it leave AUD/USD:

The currency pair has jumped strongly to 1.0286 (4:04 GMT) from the low of 1.0149. Such a jump is otherwise also expected after a strong decline. The upward move is yet to complete even the 38.2% retracement.

AUD/USD Daily chart:

Employment data - AUDU/SD daily chart - October 11 2012

The next resistance can be expected near 1.0300 which would represent the 22-day EMA resistance. The 55-day EMA resistance stands near 1.0345 and the 38.2% retracement of the recent downward move is below that and near 1.0330.

Australian Dollar being a commodity currency tends to weaken when the global economic confidence goes down. The current situation with negative outlook of global economic growth by IMF (Please check EUR/USD outlook for details), uncertainties in Euro zone and the overall weakness in the confidence levels go against AUD and hence another fall of AUD/USD can not be ignored. Some more upward consolidation can also not be ignored but then we will we consider that only as a consolidation till any strong break over 1.0420 does not take place.