Aussie dollar rise stalls on jobless jump

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A recent rally in Australia’s dollar stalled on Thursday as data showing unemployment at its highest rate in a decade turned investors’ focus back to the problems besetting the country’s manufacturing sector.

The jobless rate rose from 5.8 per cent to 6 per cent in January, according to data that showed a net loss of 3,400 jobs and a much bigger drop in full-time positions – confirming that no new jobs had been created in the last 12 months.

“The labour market continues to reflect the changes in the Australian economy,” wrote analysts at Commerzbank. “The ending of the boom in the mining sector generates layoffs while the other sectors of the economy are struggling to compensate for these job losses.”

The Aussie dropped almost 1 per cent against the US dollar before disappointing retail sales data in the US trimmed those losses; by 5pm in London it was down 0.5 per cent at 0.8984 to the dollar and down 1 per cent against the euro.

After a year-long slide, the Australian dollar had rallied by some 4.5 per cent since the start of the month, after the Reserve Bank of Australia signalled an end to a two-year easing cycle. The central bank also changed its view on the exchange rate, apparently deciding the Aussie was no longer overvalued and saying that if its recent decline were sustained, it would “assist in achieving balanced growth”.

Currency speculators had since then been cutting short positions on the Aussie, according to the latest data from the Commodity Futures Trading Commission, and may have been caught out by the latest twist in the data.

“The market was caught leaning the wrong way,” wrote strategists at Brown Brothers Harriman.

Todd Elmer, strategist at Citigroup, said the bank’s own client flows suggested that there was still “a significant stock of leveraged shorts” on the Aussie. He argued: “since the bigger surprise in recent weeks has been the hawkish shift from the RBA… once the dust settles, we suspect the Australian dollar will again head higher”.

However, Cliff Tan, analyst at Bank of Tokyo Mitsubishi, thinks the currency may now be close to its fair value, with whatever overvaluation was induced by the last decade’s boom in commodities “more or less over”.

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