DB FX Daily : Employment Day for AUD and NZD

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FX Daily: London
Employment Day for AUD and NZD
Today's Key Data and Events
GBP UK BOE Inflation Report (09:30 GMT)
USD US Wholesale Inventories for Jun, +0.4% expected (14:00 GMT)
NZD NZ Employment for Q2, +0.3% expected (22:45 GMT)
AUD Australia Employment for July, +25k expected (01:30 Thursday GMT)

Upcoming Event Risks
Aug 13: Japan Q2 GDP
Aug 15: Norges Bank rate decision
Aug 23: BoJ rate decision
Aug 31: Jackson Hole Symposium

Employment day for both AUD and NZD
The day ahead sees employment reports released in both New Zealand and Australia. When we look at the charts below we can see that both have been reasonably consistent drivers of their respective currencies in the past couple of years on a closeclose basis, (although this is less true if we look at NZD/USD or AUD/USD as the initial moves in these crosses tends to get overwhelmed by subsequent USD moves). We would also note that the miss on the consensus employment forecast has had a far stronger relationship on the day than the miss on the consensus unemployment rate forecast.

Looking first at the NZ employment report, our NZ economist is look for a 0.3% qoq rise, and expects the unemployment rate to nudge down to 3.7% - both of which are in line with market consensus. While Monday's Quarterly Employment Survey did suggest the risk of a stronger report, we suspect the NZD may not be boosted as substantially as recent history would suggest now that the RBNZ has signaled that it hopes it has now completed its tightening cycle. Our Australian economists look for a 25k monthly rise in July, again in line with the market. They do note though the potential impact of the final leg of the `Welfare to Work' reforms could see up to 30k single parents enter the labour force, likely initially as unemployed persons. As a result their forecast looks for a move in the unemployment rate to 4.7% from 4.3% in June, well above the market consensus of a rise to 4.4%. We would not expect any AUD weakness on this to be long-lived, however. As we noted above that the market tends to react more to the employment outcome than the unemployment outcome. Moreover, the market is likely to assess this rise as "technical" in nature reasonably swiftly and as not indicating any underlying weakening in the Australian economy. So despite the economic risks on the day seeming skewed against our current bullish AUD/NZD view, we are happy to retain this view, and continue to look for a move to 1.1475.

John Horner
Strategist
(+61) 2 8258 2130
[email]john.horner@db.com[/email]