Daily Report: Aussie Rises on Employment Report, Dollar Consolidates

Australian dollar rises today on the back on unexpectedly good employment report. The job market expanded for another month by 24.5k in in October versus expectation of -10.1k contraction. Though, unemployment rate climbed from 5.7% to 5.8% as expected. AUD/USD soars to as high as 0.9368 so far. While upside momentum is diminishing a bit, there is still no clear sign of topping in Aussie yet and the current rise in AUD/USD might still extend further to a test of 2008 high of 0.9849. Against Euro, EUR/AUD, took out previous low of 1.6079 and dives to as low as 1.6017. We're still expecting further downside in the EUR/AUD cross towards lower trend line support at 1.5702 next.

Mid-Day Report: Sterling Pounded By BoE King's Comments

Sterling was knocked down earlier today after BoE Governor King said that the bank is "completely open mind" on extension of the quantitative easing program. King believes the program is "working and the risk of another depression has "sharply diminished". Nevertheless, it "will be a long, hard path back" to a robust economy. Also, King reiterated that "The depreciation of sterling should lead to a recovery in economic activity." Sterling is sharply lower against Euro and dollar after the comments.

In he Quarterly Inflation Report, BoE forecasts for GDP growth and inflation outlook. These estimates were made based on assumptions that the benchmark interest rate, currently at 0.5%, rises to market expectation of 1.1% in 3Q10 and 2.1% at 1Q11, as well as asset purchase program of 200B pound. BOE also anticipated inflation will rise sharply in the near-term and exceed the target level of 2% in 2012.

Also released from UK, unemployment rate was unchanged at 7.8% in September, better than expectation of a rise to 8.0%. Claimant count also rose less than expected by 12.9k in October.

Elsewhere, dollar dips to new low on dovish comments from Fed officials. Dollar Fed Fisher said that inflation is likely to remain subdued for some time and the near-zero interest rates are appropriate. He said growth was likely to be "suboptimal" into 2010 and 2011, with unemployment a "vexing problem." San Francisco Fed Yellen said the prospect of a “jobless recovery” in a speech yesterday. Atlanta Fed Lockhart expects a "relatively subdued" growth pace this quarter and beyond.

BOE Upgraded Forecasts on Growth and Inflation

At the quarterly Inflation Report in November, the Bank of England raised forecasts for GDP growth and inflation outlook as economy has expanded again and will not slip back into a recession. These estimates were made based on assumptions that the benchmark interest rate, currently at 0.5%, rises to market expectation of 1.1% in 3Q10 and 2.1% at 1Q11, as well as asset purchase program of 200B pound.

According to the quarterly Inflation Report, the UK's economy will undergo a 'slow recovery' and 'the outlook for inflation in the medium term is somewhat higher than the August report, reflecting the stronger projected distribution for GDP growth... the risks of inflation being above or below target are broadly balanced by the end of the forecast period'.

Although the nation's GDP surprisingly contract -0.4% qoq in 3Q09, the central bank revised up its GDP forecasts and signaled revisions of 3Q09 data. According to the BOE, upward revisions reflects the increased asset purchases, the lower interest rate path implied by market yields, the lower level of the exchange rate and a stronger outlook for world demand.

The BOE also anticipated inflation will rise sharply in the near-term and exceed the target level of 2% in 2012. According to the report, 'the risks of inflation being above or below the target are broadly balanced by the end of the forecast period. The outlook for inflation in the medium term is somewhat higher than in August, reflecting the stronger projected distribution for GDP growth'.

Australia Unemployment Rate Preview and EUD/AUD Outlook

(November 12, Thu) Australia unemployment rate - October: After a surprising increase in payrolls (+40.6K) in September, a modest decline in employment (-10K) is expected in October. This should have pushed the unemployment rate +0.1 percentage points higher to 5.8%. Although economic recovery has been robust in Australia, unemployment rate may continue to rise from current level in coming months. However, the peak should be lower than what was expected by the market in the first half of the year.

In September, the number of persons looking for full-time work increased by 9500 to 497 400 and the number of persons looking for part-time work decreased by 13 300 to 161 200. This halted the recent trend that workers looked for part-time jobs due to reduction in full-time unemployment. We believe the number of workers looking for full-time jobs should have increased further in October.

Also, aggregate monthly hours worked increased 13.4 million hours to 1522.4 million hours in September. This was driven by improvement of economic conditions. The trend should have continued in October.