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Poor Employment Data may put many FX Traders out of a Job
Why charting can only be half the story, and how to prepare for the coming onslaught
Storm the (AUD) Beaches
It’s obvious now that the Australian dollar is a hyperreactive currency that is particularly susceptible to shifts in a small number of things like local elections, Chinese elections, US elections, copper prices, iron ore prices, natural gas prices, US inflation, Aussie Inflation, US unemployment, Aussie Unemployment, US interest rates, Aussie Interest rates….
When looking at all these factors and thinking about it more critically, the Aussie dollar is a house of cards that can be propped up and blown apart by any individual or concoction of the above-mentioned factors.
A lot of readers most likely thought it was a new day of Aussie dollar strength, fighting hard against the greenback. A few speeches and lukewarm employment figures turned that all upside down.
A Ray of Hope
In our previous article, we outlined how even mildly spicy US employment figures could launch the Aussie dollar. And it did. The AUD/USD pair kept appreciating according to plan with no end in sight (Did you get your shorts in? tell us below 👇)
It even pierced the 0.70c threshold and holding there, well-held 63pips higher at 0.7508 if you want to get into the nitty-gritty. It’s a great place to be but if the pair were Mt Everest, the 70-80c range would be the death zone. A place of little oxygen where things can turn on a dime either way.
Then what happened? How many of you probably got your long calls blown out early this morning?
The Aussie crashed 160pips in 12 hours
Crashing Back to Earth
If you’re a charting type then it’s easy to assume that it only crashed because it was at 70c and it needed a retrace. You are correct however, charts are the result of other driving factors, not the driving factors of large-scale movements themselves.
Cycling back and tracing our steps,
At 1:30 pm UTC (18.1.23)
The US released its retail sales figures. A staggered release that lags by 15 days, would have encompassed Christmas and holiday shopping. As such the figures came out low.
In what is yet another disappointing set of US activity data, retail sales fell 1.1% month-on-month in December, worse than the -0.9% figure the market was expecting. Meanwhile, November's contraction of -0.6% was revised to an even weaker -1% MoM print.
It is safe to say that this may be the first signal to the Fed to soften its approach to rate hikes. Although a 25Bps increase in Feb is still likely, this shows that the intentional approach to slow down the economy is working. As such US Buyers launched at the opportunity and the drop began.
Hawkish Fed commentary helped the greenback with Bullard and Mester both predicting rates would need to be above 5% and remain there to bring inflation back to target, contradicting any indications of easing inflation and a slowdown in rate hikes.
At 12:30am UTC (19.1.23)
Australian employment figures also came out. They remained largely the same but were enough to encourage just a little more selling off into the afternoon.
In trend terms, in December 2022:
The unemployment rate remained at 3.5%.
The participation rate remained at 66.7%.
Employment increased to 13,765,200.
As such it can be confirmed that the rate hikes we saw in 2021 are having the intended effect. There are more rate hikes on the horizon but it is very unlikely we will see the same vigour in interest rate hikes that we saw last year. A slow burn to clamp down on the economy until we see something of a 2008-2009 period of slow reduction of rates.
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