Summary:

• Japanese yen is again the strongest currency in G10 following (no) comments from finance minister Aso
• Australian labour market report turns out a bit disappointing as full-time employment misses the consensus
• Wall Street managed to recover yesterday following a brief inflation-driven decline, US yields surge

Another day and the same story, the Japanese yen is gaining traction being the best performing major currency in the G10 basket. While prior to today there were no concrete reasons standing behind such stellar performance, things changed somewhat during today’s Asian session. Let us recall that we already suggested on Wednesday that higher levels seen in the JPY could prompt the country’s authorities to intervene as they said all those moves need to be closely monitored. We did not have to wait too long before some remarks occurred. To be precise, Japanese finance minister Taro Aso claimed overnight that yen’s strength has been not enough to require intervention as it has been not so abrupt. Following these suggestions JPY bulls got green light to continue their march and they have done it thus far as the USDJPY is trading below 106.50 at the time of writing being 0.5% higher on the day against the greenback. Notice that the JPY has been the standout major currency so far this week.

While the current levels in the JPY have been unjustified to intervene for the Japanese ministry of finance, their attitude could shift when the pair keeps on sliding. The nearest support may be found a notch above a 104 handle so there still quite a long way to go. Source: xStation5

In terms of macroeconomic readings one cannot leave out the Australian jobs report, which in turn turned out to be quite equivocal. While the headline employment change came in at 16k beating the consensus placed at 15k, the details were not so upbeat. Namely, full-time employment decreased as much as 49.8k making its largest one-month decline since September 2016. At the same time, part-time employment grew by stunning 65.9k smashing expectations set at 20.7k.

Australian full-time employment disappointed in January making its biggest monthly retreat for some time. Source: Macrobond, XTB Research

On top of this, the unemployment rate slid from revised 5.6% to 5.5% in line with forecasts while the labour force participation rate ticked down from 65.7% to 65.6%. What does the report mean for the RBA’s policy? In short, not too much, however, despite a fall in full-time employment there was the 16th consecutive month of an increase in overall employment, the longest such a streak ever. Nevertheless, a much more important issue at this stage of economic recovery seems to be wage growth as it is scheduled to be published as soon as the following week. So, keep a close eye on it as it could be a possible short-term game changer for the Australian dollar. Let us remind that the latest New Zealand jobs report saw wage growth surging in the last quarter of 2017, hence the story seems to have a chance to repeat itself in Australia at least to some extent as both economies are quite strongly correlated to each other.

The Australian dollar seems to be en rout to its crucial supply zone located at around 0.81 and slightly above it. Source: xStation5

Finally, it needs to mention the yesterday’s session on Wall Street as it saw an amazing turnaround. While all major indices dipped in the aftermath of higher than expected inflation (apparel costs were a major culprit) and a notable miss in retail sales, equity bulls roared thereafter as they were ultimately able to make decent gains. Consequently, the SP500 (US500 on xStation5) added 1.35%, the Dow Jones (US30) moved up 1.05% and the NASDAQ (US100) surged as much as 1.85%. Do notice that these rises came despite a rally seen in US yields as the US 10Y yield crossed 2.92%, the highest point in four years.

The SP500 managed to break above a resistance in form of 2680 points which could enable bulls to continue catching up. However, if US yields keep rising it could mean more pain for equities as the rising discount rate will be undercutting current stocks’ valuation. Source: xStation5