The Australian dollar rollercoaster continued on Thursday, this time with the focus on the downside. There was AUD/USD resistance above the 0.9050 level and the latest labour-market data was weaker than expected with an employment decline of 3,700 for January as unemployment increased to 6.0%. With risk appetite also generally more fragile, AUD/USD retreated to lows below 0.8950.
Risk conditions also impacted on USD/JPY with a fresh retreat to the 102.0 area. There were renewed concerns surrounding the Chinese banking sector with a reported increase in non-performing loans which tended to undermine sentiment as EUR/USD initially consolidated around 1.3630 in early Europe.
The latest ECB economist projections showed lower inflation forecasts for 2014, but they also expect inflation to rise back towards the 2.0% target in 2016, a period which has been marked-out by ECB President Draghi as crucial when considering interest rates.
The forecasts provided a limited push higher in EUR/USD on reduced speculation of action at March’s council meeting and dollar selling escalated once the 1.3650 area was broken with a move to test EUR/USD resistance above 1.3680. The US currency overall remained on the defensive and unable to gain any traction against major currencies. The Euro was able to resist any significant selling pressure on continued tensions within the Italian government.
Although there was a weaker than expected reading for the UK RICS house-price survey, underlying confidence in the UK outlook remained stronger and Sterling continued to bask in the afterglow of sharp gains seen following yesterday’s Bank of England inflation report. GBP/USD continued to push higher and probed resistance levels above 1.6650 before being subjected to profit taking. EUR/GBP was also able to stop the rout as it found support below 0.82.
The latest US retail sales data was weaker than expected with a headline decline of 0.4% for January, the second successive monthly fall, while core sales were unchanged over the month. The jobless claims was also slightly weaker than expected at 339,000 from 331,000 previously, although this was still a solid release in underlying terms and there was only a limited decline in US bond yields.
Fed Chair Yellen’s second congressional testimony was postponed due to adverse weather conditions and weather was also a contributory factor to the disappointing sales data. This helped cushion the dollar from more aggressive selling with USD/JPY finding support below 102 as equities rallied from initial lows.