Aussie tanks on China’s ban on coal imports

Summary:

• Australian dollar loses the most among its G10 peers following the news on a coal imports ban from China
• Jobs release from Australia showed robust numbers suggesting the RBA may have more time to consider whether rate cuts are needed
• FOMC minutes confirmed patience among members when it comes to rate hikes

Aussie steals the show

The recent hours have been all about the Australian dollar due to a jobs release we got overnight as well as the breaking news brought by Reuters regarding a possible China’s ban on Australian coal imports. These events overshadowed the yesterday’s Fed minutes, we are writing about this later in this article.

The Australian jobs market continues thriving supporting the scenario of a goldilocks economy. Source: Macrobond, XTB Research

A release for January showed that Australian employers added as much as 39.1k new jobs, well above 15k expected, however, the December’s figure was revised down to 16.9k from 21.6k. Moreover, the entire increase came from full-time jobs surging 65.4k after falling 9.5k in the final month of 2018. That implies that part-time jobs decreased 26.3k, the figure offset the December’s 26.4k rise. At the same time, the jobless rate held unchanged at 5% matching the median estimate while the labour force participation rate ticked up to 65.7% from 65.6%, a signal than more Australian people decided to enter the labour force. One flaw in this release could be a number of new vacancies which increased much less than in December, producing the lowest reading since late 2017. Nevertheless, the trend has been upward in recent months implying a huge demand for work. Keep in mind that expectations about slowing global economic growth could undercut somewhat this figure in the nearest future. The Aussie whipsawed on the release - it first spiked and the erased all its gains. However, even more pain came a few hours later when Reuters published its article saying that the China’s northern Dalian port has banned imports of Australian coal and will cap overall coal imports for 2019. The ban on imports from to supplier Australia is to be indefinite and effective since the start of February. This news hammered the final nail to the Aussie’s coffin. The Australian dollar is losing 1.1% against the US dollar shortly after 6:30 am GMT being the worst performing major currency. The NZ dollar is falling 0.7% as both Antipodean currencies are correlated to one another.

The Aussie has tumbled in response to the Reuters’ report. The pair is eyeing the important demand zone nearby 0.7020. Source: xStation5

Patience confirmed

The Fed’s minutes released on Wednesday’s evening confirmed that a majority of members backed that patience was needed in tightening monetary policy further. Two takeaways deserve particular attention. Firstly, the minutes confirmed that a hurdle for subsequent rate hikes is placed quit high. Secondly, there is a widespread agreement among FOMC members to terminate shrinkage of the balance sheet by the end of the year. The release confirmed our stance that the Federal Reserve is coming to an end of monetary tightening even as a possible one rate hike could be still to come (it will depend of developments in macroeconomic data though). Thus, the US dollar is unlikely to be provided with more fuel from this front, and as a result other G10 and EM currencies could take advantage of it during the year barring a severe global economic slowdown.

The EURUSD barely changed to the Fed’s minutes. The pair is trading at around 1.1330 this morning being within the bullish channel. Source: xStation5

In the other news:

• Japan’s manufacturing PMI fell to 48.5 in February from 50.3; machinery tool orders slumped 18.8% YoY in January

• Australian manufacturing PMI slipped to 53.1 in February from 53.9, services PMI fell to 49.3 from 51

• China’s Ministry of Foreign Affairs said it would not use the yuan exchange rate as a bargaining chip in trade talks