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Aussie wages and employment data this week

By Nick Parsons

The Aussie Dollar ended last week pretty much where it began against a USD which lost quite a bit of ground late Thursday and into Friday. The AUD/USD pair opened last Monday in Sydney at 0.7650 and in one of the quietest weeks in recent memory remained stuck in a range of less than 60 pips from 0.7636 to 0.7694 before ending at USD0.7659.

This calm came despite the much-anticipated RBA meeting and the new Quarterly Statement of Monetary Policy; neither of which really shifted the dial much on interest rate expectations. Against this background, a new monthly round of incoming economic begins for the RBA to then consider at their last meeting of the year on Tuesday December 5th.This kicks off with the NAB Business Survey tomorrow, then Wednesday it’s the quarterly wage price index and Thursday it’s the employment and unemployment numbers.

Like most Central Banks around the world, the RBA has been a bit puzzled as to why falling joblessness hasn’t so far boosted earnings growth. And, like all the others, it just says “give it time, it will happen”. Interest rates in Australia aren’t going to move much, if at all, until wages actually do pick up, and it looks like being a quiet start to the week for the AUD, with a Guy Debelle speech on business investment the local highlight today.

The Kiwi Dollar had a slightly better week than its Aussie counterpart but still only managed to gain around 50 pips against a generally weak US Dollar. The pair opened in Wellington last Monday morning at 0.6907 and closed in New York on Friday evening at 0.6931.

The overall range was somewhat higher than for AUD with 88 pips separating the high of USD0.6972 and the low of USD0.6884. After a minor earthquake measuring 4.8 on the Richter scale was felt in Wellington overnight – almost exactly a year to the day since the destructive 7.8 Kaikoura quake – the New Zealand Dollar opens little changed this Monday morning.

Economic data this week is very much second or even third-tier but it does include possibly one of the best indicators of construction activity: ready mixed concrete production. It’s always nice to find that a nation whose official statisticians can’t measure CPI each month can still produce this gem of a number! For today the REINZ releases house sales data but as in Australia, it looks a quiet start to the week across the Tasman Sea with the AUD/NZD cross rate (which closed Friday at 1.1048) perhaps the best guide to Kiwi sentiment.

Last week was a roller-coaster for the British Pound. GBP/USD began last Monday at 1.3076 and having been as high as 1.3220 after Friday’s economic data, ended the week at 1.3190. Against the Aussie Dollar, GBP rose from 1.7087 to 1.7220 whilst against the Kiwi Dollar it gained exactly one cent from 1.8927 to 1.9027.

The weekend Press in the UK has once again been dominated by politics; a constant stream of bad news for Prime Minister Theresa May’s minority government which remains in office (though arguably not in power) only because of a coalition agreement with the Ulster Unionists.

The arcane rules of a leadership challenge in the Conservative Party require 48 of their MP’s to sign a letter of no-confidence. Reports on Sunday suggested there were now 40 such signatories and the number could rise as the EU withdrawal bill returns to the House of Commons on Tuesday. It is widely expected the Labour Opposition will join Conservative rebels to inflict a series of potentially damaging defeats on the government.

As we saw last week, however, bad political news was to some extent offset by incoming economic data. This week brings UK inflation and unemployment data. CPI is likely to rise above the Bank of England’s 1-3% target range and BoE Governor Carney will have to write a letter to the Chancellor explaining what he will do to bring it down. Spoiler alert: he has already raised UK interest rates! As in Australia, the British Pound is unlikely to rally much unless wages show signs of picking up.

The US Dollar performed very poorly last week. In the first 3 ½ days of the week, the USD index against a basket of currencies was essentially stuck in a range from 96.40-96.84. By Thursday afternoon in New York, however, the mood turned more negative, the S+P 500 index had its worst session in 3 months and the USD index then slid all day Friday to end the week at 94.10; its lowest close since October 26th.

The chief reason for the US Dollar’s drop was nervousness about the likely success – or otherwise – of President Trump’s tax reform bill. This formed a central plank of his campaign pledge to “Make America Great Again” but was delayed so much that the hopes of USD bulls were consistently dashed through the first 10 months of his term of office.

From November 9th 2016 to the beginning of January, the USD Index surged from 96.6 to 103.3 on hopes for a substantial fiscal boost, faster economic growth and much tighter monetary policy. By late September, the USD Index had tumbled to just 90.9 and if tax reform runs into the ground now, this will again become the downside target. Some support ahead of that comes from the 200 day moving average at 93.25.

The EUR opened last Monday morning around 1.1615 and dipped down to a low of 1.1561 just before Tuesday’s US open. From that point it climbed slowly but steadily to a high of USD.1166 before ending week at 1.6662. The AUD/EUR cross rate began at 0.6585 and touched a high of 0.6625 on Thursday before ending Friday on its low at 0.6565. NZD/EUR, meantime, finished the week exactly unchanged at 0.5944.

For the week ahead, Eurozone CPI on Thursday will likely be the most important of the economic numbers to be released. With Continental Europe now enjoying its 17th consecutive quarter of GDP growth, subdued price prices are the only reason the ECB continues its policy of Quantitative Easing; albeit now at a somewhat slower monthly pace.

Provisional estimates for October showed prices rose just 0.1% on the month for a 1.4% annual inflation rate though with oil prices rising and already feeding into higher pump prices for petrol and diesel, it may not be long before CPI resumes its upward path. As we keep saying, these are the key driver (pun very much intended!) of inflation right across the G20 and the Emerging Markets universe, though the EUR exchange rate this week is more likely to be driven by sentiment towards the USD Dollar.

The Canadian Dollar has had a very good November so far. It hasn’t been a one-way trade because of the volatility of incoming economic data but it has thus far been the strongest of all the major currencies. It began last Monday in Sydney at USD1.2763 and after a bit of a wobble Tuesday which saw the pair back up from 1.2702 to 1.2797, it was then a steady grind lower to end the week at 1.2689. The Aussie-CAD cross fell from 0.9765 to 0.9720 whilst the Kiwi-CAD fell a little bit less from 0.8715 to 0.8700.

As with the Eurozone and the United States, perhaps the most important economic data in Canada this week is CPI, though the annual rate is expected to ease back a touch from 1.6% to just 1.4%. Before then, there’s a few statistics on house prices to digest. September’s -0.8% m/m decline was the biggest monthly drop nationwide since 2010 whilst prices in Toronto tumbled -2.7% m/m (who said monetary policy doesn’t work very quickly?). The Bank of Canada, like its US counterpart, only has 8 monetary policy meetings per year and the next one isn’t scheduled until December 6th.