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Fundamental Morning Wrap: Aussie Employment upside downunder

This mornings institutional research has had a strong Australian flavour following favourable employment change numbers, causing a reciprocal bounce in AUD/USD. Elsewhere, the SNB rate decision and press conference caught some attention despite nothing much really changing. Elsewhere, analysts are expecting some horse trading between European nations ahead of the coming EU summit while in the US, energy independence is seen as heralding the end of the "New Normal".


Better than expected employment gains in Australia have hit the headlines overnight. Derek Halpenny of BTMU notes that AUD advanced by 0.7% against the dollar following the largest monthly increase in 13 years. Kit Juckes of SocGen comments, ““Rate cut hopes are in tatters. Mind you, given where 'risk' or more simply SPX is, short AUD bonds and short the currency is still viable.” Nomura economist note that overall, they see this report as being strong, suggesting that the Australian labour market is not weakening after months of lackluster performances. However, they add that one employment numbers are notoriously erratic and one month change does not constitute a change. Gareth Barry and Geoffrey Yu of UBS are maintaining their non-consensus views for unchanged RBA ahead.


Julien Mancaeaux of ING notes that the SNB reiterated reiterate its intention to “to enforce the minimum exchange rate of CHF 1.20 per euro with the utmost determination” after holding rates at 0%. Meanwhile, Gareth Barry and Geoffrey Yu of UBS note that longs held in AUD, SEK and others in the SNB's diversification basket may need to pause and decide how much appreciation is sustainable without an underlying SNB bid.


Derek Halpenny of BTMU notes that in Europe, Germany pushed forward a vote on its budget which will result in Germany reaching a balanced budget one year earlier than required. He sees that was pushed forward ahead of the EU summit and will be the ammunition used by Germany to urge other countries to stick to austerity. However, France and Spain are arguing for some easing of targets and although a shift may be agreed, he believes that they may be modest at best.


Michael Hartnett of BAML believes that higher a USD and lower volatility signifies the end of the “New Normal”. He feels that US energy independence is unambiguously bullish for USD and the end of the deflationary correlation between USD and financial markets is another sign of macro normalisation. Derek Halpenny of BTMU is looking forward to the balance of payments statistics. He writes, “Net FDI on a 4qtr sum basis is currently at a record USD 212bn – we expect this deficit to start declining as optimism over the economy and cheap energy starts to draw inflows. That scenario would be very positive for the dollar.”

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