The Australian dollar fell sharply during Thursday’s trading, following much weaker-than-expected employment data for July. Unemployment jumped to 6.4% compared with 6.0% during June. 6% was also the figure economists were expecting. This represented a 12-year high in unemployment and it was quite a shock for market participants. Employment fell by 300, as opposed to economists’ expectations of a gain of 12,000.
The Australian Bureau of Statistics did caution however that statistical issues such as the rotation of the survey sample and seasonal adjustment may have artificially pushed the rate higher, but these issues could not account for all of the weakness.
The Australian dollar dipped well below 93 cents against the US dollar, to trade at 0.9265; a 2-month low. Contributing to the aussie’s weakness were bets that the RBA may no longer afford to sit on the fence and may need to cut interest rates lower before the end of the year in order to help the economy. Unemployment is a key variable that all central banks watch – in addition to their primary target of inflation – when they set interest rates.
Looking ahead, the ECB meeting will attract a lot of attention today – and particularly Mario Draghi’s post-meeting press conference. The euro managed to recover from a fresh 9-month low of 1.3333 hit on Wednesday to trade at 1.3382. The ECB is facing a growing number of headaches; inflation has fallen to 0.4% year-on-year, Italy has slipped back into recession, geopolitical concerns and sanctions against Russia are hurting Eurozone economic prospects while in Portugal, the country’s largest listed bank BES had to be rescued by the state. The focus will be on whether the ECB is thinking about reacting to these events with some additional stimulus or if it plans to wait and see what effect the existing steps it decided on back in June will have first. In either case, analysts expect the euro will probably remain in the crosshairs of short sellers for now.