Usually bound together by their geographical proximity and central banks’ policies, the Australian and New Zealand Dollars are diverging quite dramatically as it appears policy may be diverging once more. Ahead of the Asian session on Thursday, the Reserve Bank of New Zealand struck a hawkish tone at its policy meeting, propelling the New Zealand Dollar to fresh monthly highs against the US Dollar.
The Australian Dollar’s fate overnight was not as kind. After the Aussie had rallied consistently throughout the week following Tony Abbott’s rise to Australian Prime Minister, the August jobs data underscored how tough a job it will be for the new government to achieve its goal of reinvigorating economy.
The Australian economy lost -10.8K jobs versus a gain of +10.0K expected, with the Unemployment Rate ticking up to 5.8%, the highest rate since August 2009. The Australian 10Y note yield dropped sharply, now at 4.040%; all of the gains in yield over the past week were lost.
From here, the Aussie’s fate is tricky. Credit Suisse Overnight Index Swaps barely budged on the jobs data, with only an 8% chance of a 25-bps rate cut at the next policy meeting. While that is softer than the beginning of the month – 0% – it settled tighter than the intraday low of 10%. Over the next few days, traders look to see which takes trend develops – technical resiliency or fundamental retracement. See the chart below for greater explanation.
AUDUSD 5-minute Chart: September 12, 2013 Intraday
Taking a look at European credit, slightly lower yields across the region – but for Portugal – have undercut the Euro on Thursday marginally. The Italian 2-year note yield has decreased to 2.034% (-0.1-bps) while the Spanish 2-year note yield has decreased to 1.675% (-0.5-bps). Likewise, the Italian 10-year note yield has increased to 4.529% (+0.3-bps) while the Spanish 10-year note yield has decreased to 4.450% (-2.6-bps); lower yields imply higher prices.
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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TECHNICAL ANALYSIS – CHART OF THE DAY
– The June 11 swing low at $0.9325 proved to be staunch resistance amid the jobs data, having previously contained advances on June 26-27, July 11, and July 23-24.
– For now, the September 5 and 6 lows set above the daily 55-EMA at 0.9115 is the critical line in the sand for bulls.
– A break below 0.9115 would exposure yearly lows below 0.8900.
– Conversely, the bull scenario with a weekly close above 0.9325 would suggest a greater rally into 0.9665.
— Written by Christopher Vecchio, Currency Analyst