After a few weeks of defensive trading the Australian dollar seems to be showing some signs of life. The currency had declined from .9350 against the US dollar to .8600 a 19% retracement. As riskier asset began to fall a few weeks ago when the PBOC (China Central Bank) began to signal to the market that it was trying to tighten policy by having regional banks restrict loans, the Australian fell in tandem. When the reserve bank of Australia unexpectedly failed to tighten rates last week, the currency accelerated to the downside.
The Australian Dollar surged after Australian employers added the most workers in more than three years in January. The number of people employed rose 52,700 from December, more than three times the 15,000 median estimate of economist surveyed. The jobless rate fell to an 11-month low of 5.3 percent from 5.5 percent, the statistics bureau said in Sydney today. Immediately, interest rate traders began to price in a 50 basis point tightening into the current debt contract, which in turn pushed the Australian dollar higher. While the US and the European countries are in the easing part of the monetary cycle, Australia and Canada are showing strong signs of life. China is one of Australia's largest trading partners, and the Chinese economy continues to remain robust. Today, New Yuan loans more than tripled to CNY1290 bln in January from CNY3798 bln in December likely reflecting a surge in borrowing ahead of perceived tightening later this year. The market had expected a jump in new lending and today's data release was slightly higher than the expected CNY1.375.0 bln. This will continue to help stimulate Australia's exports and create demand for the currency.
The AUD/USD was able to hold on to the technically important 40 week moving average, and should continue to press higher in the weeks to come.
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