Friday was all about the non-farm payrolls number, which came in below estimates at 113k (versus 180k expected) while the unemployment rate dropped to 6.6% despite the participation rate ticking higher.
The data saw bonds a touch firmer, while the US dollar was weaker. While some feel perhaps this removes the need for the Fed to be aggressive with tapering, I feel the chances of this deterring the Fed from a steady pace of tapering remain slim. Importantly, the drop in unemployment to 6.6%, mainly due to a healthy rise in employment in the household survey, puts the unemployment rate within the Feds 6.3%-6.6% 2014 target range quite early in the year.
Focus now switches to Chairperson Janet Yellen’s inaugural monetary policy testimony before the House on Tuesday and the Senate on Thursday. Whilst we are unlikely to hear any policy changes from this, it might bring to light some options on forward guidance.
For the rest of the week, we have retail sales, industrial production and consumer sentiment to look out for, as well as unemployment claims. All these releases have the potential to see the USD come back to life.
Jobs numbers the main focus locally this week
The AUD was one of the biggest beneficiaries to Friday’s data as it jumped to just shy of 0.90 against the greenback. Unfortunately the selling kicked in near the 0.90 barrier and by the end of US trade the pair had dropped back to 0.896.
It is an interesting time for the AUD as it continues to squeeze higher after the RBA switched from an ultra-easing bias to a more neutral bias. On the local calendar jobs numbers will be the highlight this week on Thursday. The RBA has already said it expects unemployment to tick higher over the next few quarters and therefore a move higher to 5.9% is perhaps not a shocker. In fact, this puts potential upside pressure on the AUD. When expectations are low, the potential to outperform is always rampant. Should the AUD manage to break through 0.90, a retest of mid-January highs at 0.9086 is possible.
We will also be keeping a close eye on China after comments from the PBoC’s Q4 monetary policy report. The PBoC has pledged to use a variety of tools to manage liquidity, including the reserve-requirement ratio, open market operations and short-term lending facility. However, it will also look to firmly curb speculative home purchases, reiterate its push towards interest liberalisation and reform of the exchange rate system.