AUD plunges despite mixed jobs report

Australia’s jobs report was widely declared a stinker, as the unemployment rate stayed at 5.2% rather than the expected 0.1% drop and the solid jobs growth was almost entirely down to part time payrolls growth. Still, the steady unemployment rate is the product of the good news that the participation rate rose 0.1% and the choppy payrolls data series has registered two strongly positive headline reads in a row – usually there is a good deal of month-to-month mean reversion.

If the last phenomenon repeats historical patterns, we could arguably be in for an ugly June data set. AUD is weaker and EURAUD has looked above its highest daily close since late 2009.

Boris Johnson looks a lock to take leadership of the Conservative party in the UK and thus become the next prime minister; nothing is 100%, but as the winnowing of the Conservative candidates proceeds from here, we’ll clearly end with Boris versus a centrist candidate.

Didn’t we already try that approach with the hapless Theresa May? I will offer my thoughts on Brexit from here in a piece that should be out tomorrow, so look out for that. I am beginning to transition to a more constructive long-term view on sterling if the situation plays out as it should, meaning that cooler heads prevailed and that we get a “managed Brexit” with the adults in the room keeping terms reasonable and the process civil. There is plenty of room for two-way action in sterling over the next few months.

Today we’ll be watching the Swiss National Bank for how pointed its comments are on the intent to maintain a ceiling on the CHF after EURCHF recently touched below the 1.1200 area. The weekly sight deposit data has picked up marginally since the beginning of the year, but not enough to suggest any intervention thus far.

The interest in the weekly US jobless claims reports, the latest out today, may continue to pick up from here as confirmation or not that the US labor market is weakening after that weak May cycle in the Nonfarm payrolls. That data series has put in a kind of low, but hasn’t shown persistent signs of a deterioration yet.

Chart: AUDUSD

AUDUSD is poking back toward the lows after the clear resistance area at 0.7000 survived following a bit of stress-testing. The obvious next test is the cycle low – and lowest daily close of the year – precisely matching the lowest low in early 2016 near 0.6870.  

Trading interest

The stop levels for USD longs via AUDUSD (>0.7025), NZDUSD (>0.6700) and GBPUSD (>1.2775) last mentioned a few days ago have all survived, and USD longs may look to tighten risk here to below the recent highs in all of these pairs.

A developing story that looks a bit worrisome is the US Navy reporting that two tankers off Oman are “damaged” and that one of the ship’s operators claims it was attacked. As of this writing, oil had fallen back a dollar from the initial, $2.50/barrel spike on the news.