General Commentary
Last Week’s Currency Trading Review:
The EUR/USDeased by 18 points after the release of the ECB monthly report which seemed to indicate that more stimulus would be forthcoming from the central bank. The currency is trading at 1.3623. Today’s ECB Monthly Report repeated the latest monetary policy statement, in which the Governing Council reiterated their pledge to keep rates low for an extended period of time and suggested that the package of measures implemented in June has already led to a further easing of the monetary policy stance.
“The Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation,” the report stated. “The Governing Council is strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term.”
The ECB also suggested that the risks to the Eurozone economic outlook are on the downside and that the major threats include geopolitical tensions as well as lack of momentum in the pace of implementing structural reforms by the EU Member States and a poor domestic demand.
The US dollar recovered some momentum after falling close to the 80 level after the FOMC minutes disappointed traders hoping to see a clear path to interest rate increases in the future, but there was virtually no mention of rate increases in the report.
The AUD/USDgave up 12 points to trade at 0.9400after disappointing Chinese trade numbers and a significant increase in Australian unemployment. The unemployment rate has risen to 6 per cent in June, its equal highest level for more than a decade, making the government’s task of generating a million new jobs more difficult. The economy shed almost 4000 full-time jobs between May and June while the number of unemployed Australians increased more than 20,000 to 742,000, the Australian Bureau of Statistics said today. The Australian dollar dropped below 0.9400 shortly after the numbers were released.
The total level of employment in the Australian economy rose 15,900 to 11.58 million in June thanks to a surge in the number of part-time jobs, which make up around 30 per cent of the total. In better news, the participation rate — the number of people of working age in or seeking work — rose to 64.7 per cent from the 8 year low of 64.6 per cent a month earlier.
The USD/JPY is down 11 points as the US dollar weakened after the release of the FOMC minutes which gave no indication of potential interest rate increases but did specify an end date for asset purchases. Japan’s core machinery orders unexpectedly fell 19.5 percent in May from the previous month, government data showed on Thursday, casting doubt over the outlook for a pickup in capital spending.
The month-on-month decrease in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, compared with economists’ median estimate of a 0.7 percent gain in a Reuter’s poll of economists.
Japan’s current account logged a higher-than-expected surplus in May, government data showed on Tuesday, as the trade deficit narrowed due to a decline in imports. But the improvement in the current account surplus could be temporary as export growth slowed in May; a sign that firms shifting manufacturing capacity overseas has made it difficult for exports to grow rapidly. The current account data also highlighted the need to stimulate domestic demand and the services sector as exports are no longer enough to drive economic growth.
