Overview and expectations for September 13, 2018

Overview and expectations for September 13, 2018 including Australian unemployment figures

This overview highlights the most significant economic events taking place today: Unemployment data in Australia, bank rates in UK, consumer data from US and refinancing data from Europe. Traders can benefit from anticipating and understanding how these data releases can affect the markets.

Today’s overview focuses on Australia unemployment data, UK’s bank rate votes and monetary policy summary. Today’s analysis will also cover EU main refinancing rate and ECB Press Conference as well as key consumer data from the US. All sets of data can affect the markets and the currencies of the respective countries and traders can benefit by anticipating those effects and trading accordingly.

AUSTRALIA UNEMPLOYMENT DATA

Employment change readings help governments measure the change in the number of people employed. Job availability is a key identifier of consumer spending. Higher than expected readings can be bullish for the Australian Dollar (AUD) and vice versa.

Readings from August 15th showed a lower than expected value of -3.9K from the forecasted 15.0K indicating a bearish change for the AUD. Analysts are expecting a 18.4K rise but they also express concerns about the USD due to the ongoing US-China trade wars.

Unemployment rate readings allow governments to calculate the figure of the total workforce currently out of work and actively looking for employment. Traders can benefit from using unemployment rate signals to invest in a currency at the right time. A higher than expected reading suggests a bearish change for the AUD while a lower than expected value indicates bullishness.

Actual readings from August 15th showed unemployment to be less than expected. Analysts forecast was 5.4%, while the actual level was 5.3%. This should be taken as a bullish signal for the AUD. The Reserve Bank of Australia “expects momentum to remain robust, forecasting growth” as both unemployment and wage growth support stronger consumption and business investment.

According to Annette Beacher and Mark McCormick, Strategists at TD “August is a seasonally weak month for employment, with an average of 95,000 losses from 2009 to 2013 in original, non-seasonally adjusted terms.” Expectations for next month indicate a rise in unemployment from 5.3% to 5.4%. If expectations fall within targets, the spike will be temporary. The rise indicates a bearish move for the AUD.

UK BANK RATES UNDER THE SPOTLIGHT

UK’s Bank of England (BoE) Monetary Policy Committee (MPC) vote hike shows the number of previous members who voted for an interest rate hike during the previous hearing.  Traders can use this as a trading signal, as members who voted for a hike in a previous meeting may vote similarly again. An interest hike means a bullish change for the British Pound (GBP).

On August 2, expectations about how many MPC members will vote for a rate hike was below actual expectations. Analysts suggested a 7-member vote for the hike while the actual number of votes was 9. This could have been taken as a bullish indicator for GPB. However, the markets reacted differently to expectations. As a result, GBP took a 9 and 11 month low against the EURO and USD respectively. This created a highly volatile market environment, with traders benefiting from short-term investments made against the weaker GBP and others chose to buy the currency hoping it will bounce back in the long run.

With no Brexit deal, forecasts for September’s rate hike vote suggest MPC members will not vote for a further increase.

MPC POLICY SUMMARY AND OFFICIAL BANK RATE

The MPC is responsible for deciding the UK’s official interest rate. It is made up of 9 members: The Governor, three Deputy Governors for Monetary Policy, Financial Stability and Markets and Banking, the Chief Economist and four external members appointed directly by the Chancellor.

During their last inflation hearing on August 2nd, the MPC decided to raise interest rates by 0.25% to 0.75%. The vote was unanimous (9 out of 9) for rising interest rates to tackle the higher than expected inflation rate readings recorded in July at 2.5%.

Weekly reports of wage figures have been falling recently due to fewer working hours. However, hourly wage costs have been bouncing up towards pre-crisis levels, reaching 3.5% for the second quarter of 2018. This is the second highest since 2009. As a result, this could be taken as a bullish sign for the British economy. However, as Brexit looms, market uncertainty is high.

EU MAIN REFINANCING RATE AND ECB PRESS CONFERENCE

Similarly, to BoE’s MPC, the European Central Bank (ECB) has the Eurozone Interest Rate Decision committee to assess economic areas and set interest rates. It is comprised of 6 members of ECBs executive board and 16 governors of the euro area. Interest rates are key indicators for traders and monitored closely for short term investments. A higher than expected rate is considered a positive change for the EUR and vice versa if lower.

Eurozone’s interest rate has been set to 0% since March 2016 and will remain as such for as long as needed. July’s ECB’s press conference showed that, in the 2nd quarter of 2018, growth has been lower than expected. However, they are optimistic that inflation will return to expected levels of just under 2% towards the end of the year.

EU’s presidency is pushing talks for raising interest rates due to recent inflation rises but analysts’ expectations, ahead of ECB’s press conference, expect no change in the interest rate for at least another year as ECB plans to end its purchases of government bonds. As a result, this can be a bearish indicator for the Euro as interest rates will most likely stay unchanged.

US CONSUMER PRICE DATA

Consumer Price Indices calculate the price change in goods and services from a consumer perspective. This is a key indicator of changes in purchasing and inflation. Higher than expected values suggest a bullish change for the USD while a lower than expected reading is bearish. Traders can use the data readings as indicators and trade accordingly.

August’s actual CPI readings were 2.9%, 0.1% lower than the expected 3.0%. In response, the Federal Reserve’s Chairman Jerome Powell has gradually adjusted interest rates saying: “The economy is strong, inflation is near our two percent objective, and most people who want a job are finding one…”

Analysts’ expectations for September’s CPI reading estimate it to be 2.8%. If the actual reading falls within expectations, this will be a bearish indicator for the USD. However, if actual values surpass expectations, this will most likely have a bullish effect for USD.

US ECONOMY STABLE

Core Consumer Price Index (CCPI) calculates the price change of goods and services from a consumer perspective excluding energy and food. It too is a key indicator of changes in purchasing behaviour and inflation. Higher than expected values suggest a bullish change for USD while a lower than expected reading suggest bearish change. Traders can use the data readings as indicators and trade accordingly.

On August 10th, CCPI readings remained unchanged at 0.2% as expected, indicating no change in inflation. As a result, the Federal Reserve also kept its interest rate unaltered. The Fed advised that it is on schedule for any upcoming interest rate rises. It also said that the US economy is showing stable development, there is a strong employment market and close-to-target inflation. Although forecasts show CCPI remaining unchanged at 0.2% for September, analysts expect an interest hike. If actual readings surpass expectations, this can be a bullish indicator for the USD. If actual readings are less than expected, then traders should consider this as a bearish indicator for the currency.

For more information about how to use the economic data covered today to make the most out of your investments, contact FXB.

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