Mixed Signals Ahead of NFP’s; A$ Recovers After S&P Warning

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By Chris Gore | February 1, 2013 9:47 AM EST

GoMarkets

After crossing the downside of 104-figure late in the domestic session, the Australian dollar made a slow burn higher overnight, peaking at the 104.5 US cent mark in recent hours.

The local was carried lower after ratings agency S&P flagged risks to the economy from "investment overhang." Still, S&P's warning is hardly groundbreaking news with recent Reserve Bank correspondence acknowledging the risks to the economy as the mining boom tapers off.

This sentiment is expected to be repeated next week when the RBA meets for the first time this year. Although most economists predict the bank will make no change to the official cash rate this Tuesday, many have flagged a high possibility of further easing by Stevens and Co. later in the year.

Interbank cash rate futures have priced in around 27 percent chance of a 25 bps cut when the RBA meets next week, down from 37 percent late last week.

Economic data on the docket today includes the producer price index for January and the RBA commodity index later in the session.

Today's PPI data is important indicator of wholesale inflation and a closely watched prelude to overall retail prices, in turn, likely to sway demand for the local unit in the domestic trade should we see any significant deviation from estimates.

Nonetheless, we expect the key directive today will come from China, with the official manufacturing PMI data on the bill at midday, followed by the HSBC equivalent gauge at 12.45pm.

The HSBC PMI is considered to be a more accurate reflection of smaller Chinese enterprises, but both will be closely watched as a barometer of future demand and economic growth.

Arguably the most import directive for the local unit will be this evenings U.S jobs data. Markets are watching top-tier data points in the context of Fed policy, and while the FOMC appear to be happy to maintain the status quo on stimulus, markets will be all too willing to drive the greenback higher should we see a bumper number (above 200,000).

Anything short of this should see the typical risk sentiment driven price action. It's a tough one to call, but a good number should spur risk at the expense of the greenback, a great one may force markets to recalibrate Fed stimulus expectations. It's worth noting the monthly NFP's are notoriously volatile and prone to previous revisions and large deviations from economist's consensus estimates.

At the time of writing the Australian dollar is buying 104.25 US cents.

Mixed signals ahead of NFP's

U.S equities finished lower overnight with market participants mulling a series of mixed signals ahead of tonight's government jobs report.

The number of U.S citizens applying for unemployment benefits rose by 38,000 last week according to the official weekly jobless data. The number of claims increased to 368,000, in excess of the 350,000 expected.

The weekly claims data alongside the private sector gauge, the ADP employment change are considered important pre-cursors ahead of this evening's official report.

The U.S economy is expected to have created 155,000 jobs in January to match December's jobs growth. In other jobs related data, the challenger employment indicator showed planned job cuts surged 24 percent in January. Although not typically a top-tier news event, it's another mixed signal ahead of the main event tonight.

Across currencies, the Yen notched up another day of milestone lows overnight, falling to fresh 4 ½ year lows against the Kiwi, and 32-month lows against the Euro. Yen weakness was against prominent across the board, led by sterling with the GBP-JPY pair rising to fresh 33-month highs of 145.20.

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