Costs and margins
Asia is mostly weaker with a hint of uncertainty on how to play the non-farm payrolls data.
With the GDP reading out of the way, focus switches to the health of the jobs market, with the Fed swiftly running out of data to assess as it looks to make its tapering decision. Consensus for non-farm payrolls is 120,000 and unemployment is expected to tick higher to 7.3%. However, given the fact the sample size this data was taken was right in the middle of the shutdown, a lot of analysts are eyeing a disappointing reading. Apart from the payrolls data, we also have US personal consumption, personal income along with Fed members led by Bernanke himself. Any signs that tapering is still on the table will certainly push the USD higher. The US dollar index has been slowly making its way back up towards 81 again in Asia, suggesting positioning is skewed a bit more to the upside.
China data has been a highlight in the Asian session, with trade balance coming in at a much better-than-expected $31.1 billion (versus $24.8 billion expected). Exports jumped 5.6% (versus an anticipated 1.7%), while imports increased 7.6% (verses 7.4% expected). Analysts feel this data alleviates concerns about a higher yuan and certainly goes a long way towards reinforcing China stability. The data has been positive for some risk assets, particularly the AUD which had struggled on the back of the RBA minutes.
The RBA revised growth forecasts lower, highlighting capex expectations and a higher AUD as the key factors. Other key takeaways were that the RBA didn’t rule out further rate cuts if needed, and the high AUD will constrict exports. As a result, this dovish statement resulted in AUD selling, with AUD/USD dropping to a low of 0.943. The pair has since recovered to 0.946 on the positive China data, but could still come under pressure should the USD get a kicker from the jobs numbers. Over the weekend we will also have China CPI and industrial production due out along with a raft of other releases. These will only impact risk when FX markets reopen on Monday. Despite the encouraging China data, equities in Asia continue to struggle with all the major bourses trading lower.
With the NFP coming up, USD/JPY will be the key FX pair to watch after having slid significantly from the post-GDP reading highs. While the pair has found stability at 98.15 in Asia, there is potential for further volatility later today depending on which way the jobs data swings. I feel buying traders could look to buy the dips in the pair considering all the gains from the GDP reading have been erased. The fairly low expectation on the NFP print also leaves plenty of room for a surprise higher. Even an in-line print in the jobs numbers could be enough to see USD/JPY recover.
European markets are also set for a weaker start in further evidence that the ECB’s rate cut has not impacted sentiment much. While the ECB rate cut was a surprise decision, analysts still feel this move was merely a token measure and the ECB will have to look at other measures to lift the economy. In his speech, ECB President Mario Draghi insisted the rate cut was a measure it was technically ready to implement and also alluded to the possibility of another LTRO. I’m sure we’ll hear more on the ECB’s options in coming sessions and this will likely be a driver of euro price action going forward.
EUR/USD has found some stability at 1.34 in Asia and I still feel any moves higher, particularly into the 1.35 region, will be an opportunity for fresh selling. Out of Europe today we have German trade balance, French industrial production, government budget balance and trade balance to look out for.
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