Aus, NZ Dollars vs Pound Sterling: GBP on Front-Foot as Aussie 'Face-Plants' on Employment Shock

GBP had been under pressure against both the NZD and AUD mid-week after markets fixated on some poor industrial and manufacturing figures released on Wednesday.

At the time of writing we see sterling is in charge heading into the weekend:

• The pound to Australian dollar exchange rate (GBP/AUD) is 0.04 pct higher on a day-to-day basis at 1.8163.
• The pound to New Zealand dollar exchange rate (GBP/NZD) is 0.11 pct higher at 1.9882.

Note: All quotes here are wholesale in nature; they are subject to a discretionary spread by your FX payments provider. An independent provider will guarantee to undercut your banks offer, in some instances they are able to offer up to 5% more FX. Please learn more.

Aus dollar face-plants on worst job figures since 2002

Luly labour market numbers disappointed markets with the employment change surprising with a -0.3k contraction while the unemployment rate climbed to 6.4%. 

This, "saw the AUD-USD face plant and expect underlying heaviness in the pair to persist intra-day. We stay heavy within a 0.9275- 0.9350 range," says OCBC's Emmanuel Ng.

What has caught markets off-guard was that other indicators - job ads/vacancies measures and labour market indicators from the business surveys - have been improving.

"For this reason, we are not reading much into the extent of weakness in the report but are open to the possibility that labour market conditions are a bit softer than we had thought. It’s a case of waiting for another month of data," says Justin Fabo at ANZ Research.

Australian dollar on a precarious footing over China

Other headaches for AUD come in the form of China; the Aussie dollar remains "on a precarious footing with markets in selloff mode and China’s economy this week showing fresh signs of slowing," says Manimbo.

The Aussie’s higher yield means it ranks among the most vulnerable currencies to fallout from geopolitical anxiety.

With tensions in Ukraine higher, the current market remains favourable for U.S. importers so take advantage suggests Manimbo.

UK's sterling on the backfoot

Ahead of the AUD's misfortunes both antipodean currencies took full advantage of news that British industrial output rose 0.3 percent in June which was half the expected rise of 0.6 percent.

"The pound has a high sensitivity to data which the market uses to fine tune forecasts for a Bank of England rate hike. Sterling caught a bounce Tuesday in data showing the fastest services growth in eight months. A pillar the pound still has going for it is that the BOE is expected to raise rates before the Fed and ECB," says Joe Manimbo at Western Union.

New Zealand Dollar sees slowing jobs growth

The NZ dollar has been unable to really dig in against the pound as there are concerns brewing over a slowdown in the NZ economy. Of particular concern are falling dairy prices which have allowed the GBP/NZD to rally in recent weeks.

The New Zealand dollar dropped off across the board late in yesterday's evening session as job's growth slowed than estimated in Q2.

"With the RBNZ having tightened policy for four consecutive months, it is clear that there has been a negative impact on labour markets as businesses struggle to grow," notes Kamil Amin at Caxton FX.

According to the analyst the current weakness in the labour market and the previous weakness in business confidence could revive inflation growth, putting further pressure on the RBNZ to raise rates.

While such a scenario is positive for the NZD it would not be great for the economy which needs a weaker currency to keep exports flowing.

Technically speaking we see an interesting play on the Aus vs NZ dollar where resistance at 1.1050 has proven very strong in recent times.

"I’m sure the market will have a serious test of it again and see if there are stops above there. NZD/USD has chart and Fibo support near .8400 and is likely to be very hard-fought. I will buy the first test and see what happens," says Sean Lee at Forextell.