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.
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?
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?
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.
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.
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