Archived IMT (2011.04.07)

AUSSIE SPIKE & ECB SCENARIOS:

AUD/USD SPIKES to $1.0480, hitting a a new post-flotation high of 29 years, after a stronger than expected set of March employment data out of Australia. March job creation saw a 4-month high 37.8K jobs added (above expected 24K), unemployment rate fell for the first time in 3 months to its lowest level in over 2 years at 4.9%. Full-time / part-time breakdown made this number particularly bullish - 32K new jobs were full-time against net gain of 5.7K in the more transient part-time sectors. Recall this breakdown was critical in the prior month's employment report - even though February saw a net loss of 10K jobs, strong full-time component put a lid on a sustained AUD damage. The decline in unemployment rate was also made particularly impressive by an uptick in labor participation rate - something we have yet to see in improved jobs data stateside. Strong jobs growth two months removed from the Queensland flooding disaster should restore RBA confidence, yielding a more hawkish statement in May than what we saw earlier this week. That NZD and CAD fell to session lows just as AUD was rising after the jobs report did not escape our attention - most likely explanation is recalibrated carry positioning into the higher yielding Aussie dollar.

Turning to the UPCOMING ECB DECISION, it appears the euro rally has priced the expected 25bp rate hike to perfection. Obviously, decision to keep rates unchanged - not entirely out of the question given that the ECB's "strong vigilance" signal DID NOT have a 100% track record as a predictor of a tightening - would result in severe EUR damage. Even a 25bp hike may see some "sell-the-news" weakness. Instead, the focus will be on the 8:30ET press conference by President Trichet. Today's WSJ offers a terrific "playbook" of possibilities: The most bullish scenario would be another reference to "strong vigilance", indicating another rate hike in May. If the ECB pledges to monitor inflation "very closely", history suggests the next policy move is 2 months removed. The most dovish scenario is "monitor closely", implying at least 3 meetings before another rate hike. Beyond today's high around $1.4350, 78.6% retracement of the late 2009 swoon around $1.4440 looms as the next area of resistance.

By GG - AshrafLaidi.com Staff