Aussie gains after jobs report, BoK unexpectedly cuts rates

Summary:

• Australian dollar trades higher following a jobs report for June
• Bank of Korea reduces interest rates by 25 bps, just 25 bps above its record low level
• Japanese exports/imports slump in June amid trade tensions

Australian stabilisation 

The Australian economy added 0.5k new jobs last month, below the consensus pointing to 9k. However, what could be encouraging is the fact that this increase came entirely from full-time employment which jumped 21.1k in June, while part-time employment dwindled 20.6k. Moreover, the overall employment level for May was revised up to 45.3k from 42.3k. At the same time, the unemployment rate held at 5.2%, matching the median estimate, while the labour force participation rate stayed at 66%.

The Australian labour market keeps booming, but the pace of this recovery has gone off the boil to some extent lately. Source: Macrobond, XTB

As the chart above shows, the overall trend in both full- and part-time employment remained intact after June, however, one can notice that the pace of job creation in full-time employers slowed down during the past three months. The Australian dollar responded quite positively to the release and it is trading 0.3% higher against the US dollar this morning. Anyway, market-based probability suggests rates in Australia could be cut by 25 bps by the year-end (67% odds). From a technical point of view the AUDUSD keeps hovering close to the crucial supply zone, hence the upcoming hours could be critical.

The AUSDUSD keeps trading at around the upper boundary of the bearish channel. Source: xStation5

Kore cuts rates, Japanese trade contracts

There is no doubt that the Bank of Korea rate decision was among the most important news we got overnight as it unexpectedly cut rates by 25 bps, pushing the main rate to 1.5%, just 0.25 pp above its record low level. The central bank painted a gloomier outlook by cutting both GDP and inflation forecasts for this year. Now, it expects the Korean economy to expand 2.2% (2.5% had been predicted in April) and price growth to rise 0.7% (1.1%). In its statement the bank wrote that “the need to support economic recovery has become higher”, adding that Japanese export restrictions against South Korea have become a reality, hence the impact on Korean exports could be material. It was the first rate cut in South Korea since 2016 and reflects the tide of monetary easing in Asia. Keep in mind that the Korean economy relies heavily on exports, hence any serious disruptions in global supply chains might affect it significantly. 

Meanwhile, the foreign trade data from Japan does not suggest any reversal in this dismal trend in trade. The report published overnight showed Japanese exports shrinking 6.7% YoY and imports tumbling 5.2% YoY. The Japanese Finance Ministry informed that falling exports of semiconductor components and auto parts were among the biggest drags.

In the other news:

• US earnings season: Netflix EPS $0.6 (cons. $0.56), IBM EPS $2.81 (cons. $3.07), eBay EPS $0.68 (cons. $0.62)

• US indices finished slightly lower on Wednesday, Asian indices are set to close lower too