The AUD/USD is starting to show retracements of its recent rally as this month’s Australian employment data came in much weaker than expected. The March jobs report showed a decline of -36,000 jobs, much lower than the upwardly revised 74,000 figure that was seen the previous month. Analysts were expecting a decline of -7,500 jobs but this downside surprise was large enough to bring selling pressure on the Aussie back toward the 1.05 level. Some of the downside impact was limited, however, as better than expected lending data out of China was supportive for growth arguments. China and Australia are major trading partners (mainly metals exports), so positive Chinese headlines tends to support currency pairs like the AUD/JPY and AUD/USD.
The employment data was still the bigger story, however, as this will now complicate the interest rate policy at the Reserve Bank of Australia. The RBA is one of the few major central banks considering a change in interest rates this year and now that we are seeing volatility in the labor markets (massive increases followed by massive declines), analysts are likely to be split in terms of interest rate expectations going forward. This makes it difficult to establish long term positions in the Aussie, as some of the external factors that will be guiding prices have yet to materialize. This will also make the next RBA policy meeting more important for markets, and enhance the potential volatility that is created when policy statements are released.
US Retail Sales to Close-Out the Week
Looking ahead, the final news event of the week will be the US Retail Sales report, which is expected to show an unchanged result (0.0%) from the previous month. In terms of data, this week has been relatively quiet so an unchanged result seems somewhat appropriate. As long as we do not see any major downside surprises, sentiment should remain stable and this would likely place a weekly bottom in the high yielding currencies (AUD, NZD). This would also mean a likely close in the EUR/USD that is above the psychological 1.30 level, and this positive environment would likely carry over into Monday trading in Asia (bearish for the already weak Japanese yen).