GO Markets - FX Market Commentary

UK Manufacturing production for November failed to meet expectations recording no change against the expected 0.3 per cent, representing an annual contraction of 5.4 per cent. Although both Industrial and Manufacturing production data on an annual basis shows a solid decline, the latest result represents a significant improvement from October's reading which showed a yearly contraction of 8.4 per cent and 7.8 per cent respectively.

In the US we saw the release the Fed's Beige book which is the views of analyst, market experts and economist in 12 Federal Reserve districts in relation to the near-term economic outlook and current business conditions. In a similar theme to recent reports the overall tone suggested economic activity is improving, albeit at a slow pace whilst Labour market conditions remained subdued.

Locally, the all important employment figures will be released at 11.30 AEDT which is expected to show 10,000 newly created jobs in the month of December, taking the unemployment rate to 5.8 per cent from 5.7 per cent in November. Expect Aussie dollar activity to be highly reactive to this morning's jobs data, as traders hunt for clues on the impending rates decision when the RBA reconvenes in February.

Given the recent flurry of positive economic data such as last week's retail sales and ANZ jobs data earlier this week - interest rate projections have been thrown off kilter, with traders now balancing leading economic indicators such as today's result with the RBA's stance, which have suggested interest rates are now back in the normal range. We also need to consider the minutes from the RBA's December meeting - although they resembled the positive undertones of previous correspondence - the finer points indicated an attempt to pre-empt the curve, in effect providing some breathing space for the near term. Arguably, the conclusion of the minutes could be seen as precursor to the RBA stance on monetary policy when the bank reconvenes in February with the final paragraph stating as materially shifting the stance of policy to a less accommodative setting and, therefore, as increasing the flexibility available to the Board at future meetings.