Despite beating Expectations, yesterday’s Australian employment change failed to see sustained strength in the Australian dollar, with the data showing the first decline in 3 months. The job figures were still at an 8 month low amid continued weakness in commodity linked currencies.
Chinas PBOC (Peoples Bank of China) is set to plan a modest depreciating of the Yuan this year. The goal will encourage the Yuan to move up and down like a normal currency in order to make trading against the Yuan more expensive. This will ideally lead to a reduction in capital outflows
The euro weakened overnight, after the minutes of the European Central Bank’s meeting on December 3 showed that some members of the governing council voted for a larger cut to the deposit rate than was eventually announced. The minutes also said the possibility was raised of expanding monthly asset purchases under the central bank’s quantitative easing program from the current level of €60 billion, or of frontloading asset purchases.
Also Thursday, the minutes of the Bank of England’s latest policy meeting showed that the majority of policymakers said they expected pickup in inflation would be “be slightly more gradual in the near term than forecast in the Committee’s November Inflation Report projections.” Attention was thrown upon a stronger currency, with the Bank of England stating that the recent decline in oil prices resulting in short term inflation is to increase at a more gradual rate than previously forecast and that recent volatility in financial markets also underlined the downside risks to global growth.
The Department of Labor said the number of Americans filing for initial jobless benefits in the week to January 8 rose by 7,000 to 284,000 from the previous week’s total of 277,000. Economists had forecast a fall of 2,000 to 275,000.
First-time jobless claims have held below the 300,000-level for 44 consecutive weeks, which is usually associated with a firming labor market.
The story of the year has been the selloff in global equities which has seen the funding currencies outperform. The likes of the Japanese Yen & Euro have strengthened from the repatriation of loans used to borrow these currencies at a cheap lending rate to fund investments in equity markets.
The Canadian dollar has weakened more than most currencies this year, reflecting the drop in the price of oil. Outside of oil the real issue for Canada is the high labor costs, which will continue to see manufacturing decline and presents a possible rate cut next week.