AUDJPY next wk

The jobs data is a clear indicator of a turnaround of the Aussie economy which would negate the need for another round of action from the Australian central bank to stimulate the country's economy, analyst said. Economists forecast the unemployment rate would rise to 5.3 per cent, but the Australian Bureau of Statistics said over 50,000 people found jobs in April. Although full-time employment actually dropped by 11,000 on the fourth month of 2012, 26,000 part-time jobs were created for the same period. The bulk of these new jobs are in Victoria.

Australian Prime Minister Julia Gillard said returning the budget to a surplus gives the central bank “maximum room” to adjust interest rates and ease pressure on manufacturers that have been hobbled by currency gains.

“What we can do as a government is to get fiscal policy in the right shape to give the Reserve Bank the maximum room to move should they choose to do so,” Gillard said in an interview in Canberra today. “That’s been one of the drivers as to why we want to bring the budget back to surplus.”

The government yesterday forecast a A$1.54 billion ($1.55 billion) surplus for the year starting July 1, ending four years of deficits. Gillard dumped a corporate tax-cut plan, instead boosting aid for families as her Labor party tries to reverse near record-low poll ratings before an election due in 2013.

Australia’s dollar today slumped to its lowest level since December as Gillard’s fiscal restraint underscores projections for the central bank to add to last week’s cut in its benchmark rate, the highest among major developed economies. Yields on 10- year government bonds slid to a record low, auguring cheaper borrowing costs as unemployment is poised to rise.

“This budget will have the Reserve Bank leaning further toward cutting rates,” Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty in Sydney, said in an interview with Bloomberg Television. “It’s quite clear that the direction for interest rates in Australia remains downward.”

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Double-Edged

While the currency’s strength helps contain inflation by making imports cheaper, it hurts exporters by making their products more expensive relative to overseas competitors.
“The Australian dollar is one of the most highly traded currencies around,” Finance Minister Penny Wong said in an interview in Canberra today. “The market is seeing the economy has been strong and also recognizing our proximity to Asia. Certainly the engine house of global growth will be in the Asian region and obviously we’re well positioned in that.”
BlueScope Steel Ltd. (BSL), the country’s largest steel producer, in August shuttered its export division. Toyota Motor Corp. (7203) and General Motors Co. have cut jobs in Australia this year.
Labor-market weakness is taking a political toll on Gillard, who withstood a leadership challenge from predecessor Kevin Rudd in February. Labor trails opposition leader Tony Abbott’s coalition by 18 percentage points, according to a Newspoll survey published in the Australian newspaper on May 1.

U.S. Growth

In the minutes, officials said the U.S. economy’s “moderate expansion” was continuing, while economic conditions in several European countries “remained weak.” Growth in China “had slowed to a more sustainable pace, as the authorities there had intended,” policy makers said.

The expansion in Australia is being driven by China, the nation’s biggest trading partner, which is buying up iron ore, coal and natural gas as millions of people in the world’s most populous nation move to urban centers.

Resource projects in Australia valued at A$456 billion ($472 billion) are spurring companies such as BHP Billiton Ltd. (BHP) to increase hiring.

“Growth in Australia’s major trading partners, weighted by shares of merchandise exports from Australia, was expected to be around average in 2012,” policy makers said in the minutes. “This would be underpinned by the continued economic recovery in the U.S., the prospect of still-solid growth in China, and a recovery of activity in other parts of east Asia.”

Mining investment had increased by about 60 percent in 2011 and with a large number of projects already at a commitment stage, resource investment and export volumes appear likely to increase further in coming years, policy makers said in the minutes.

Australia unexpectedly posted back-to-back trade deficits as coal and metal exports slumped, a government report earlier this month showed.

“Commodity prices have declined for a few months in late 2011 and were noticeably below their peaks, but generally had been relatively stable at quite high levels for the past few months,” policy makers said. “Although Australia’s terms of trade therefore appeared to have peaked, the level remained high.”

After recording considerable gains in the ensuing period of yesterday's local jobs data, the Aussie dollar has remained under pressure overnight with early strength tailing off in the latter half of U.S trade. The local unit rose to highs of 101.43 US cents before broad based US dollar strength took hold as U.S equity markets pared gains.

FTA

MarketWatch

LOS ANGELES (MarketWatch) — Japan is promising to speed up efforts to forge a trade agreement with South Korea and China, opening the prospect of a formidable union rivaling the largest regional pacts in the world, The Wall Street Journal reported Saturday.

In an interview with the Journal, Prime Minister Yoshihiko Noda said Japan wants to start negotiations on an agreement “as soon as possible.” The agreement would be called the FTA and rival the North American Free Trade Agreement and the European Union in size.

 

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Torrential rain and hail the size of golf balls bring death and destruction to northwest China. Video: Reuters

“We are pursuing high-level economic cooperation as part of our national strategy,” Noda told the Journal. “The Japan-China-Korea FTA is an extremely important piece of it.”

Japan is relying more on China to help revive its sluggish economy, as its neighbor to the west has replaced the United States as its largest export market.

The Journal said Noda was boarding a flight to Beijing to speak with Chinese Premier Wen Jiabao and South Korean President Lee Myung-bak. The discussions are expected to center on better protecting intellectual property rights in China as well as regional security.

Japan also is trying to gain admission to the U.S.-led trans-Pacific Partnership, which may lead to difficulties in forging a regional pact with China and South Korea. But Noda told the Journal the two agreements aren’t mutually exclusive.

Still, China and South Korea aren’t being included in the U.S. effort, and China is worried about increasing American influence in the region.

Further, the U.S. is concerned that Japan.

"The likelihood European markets managed to squeeze out gains amid progress by major political parties to form a coalition government and the news Greece will receive the next tranche of bailout funds.  Despite this, markets remain on edge with concerns of Greece's imminent downfall and Spain's banking system dilemma remaining a primary stumbling block.

The day ahead will see a raft of Chinese data to guide the way with CPI and new loan activity to be the main events. In addition traders will be watching closely to release of retail sales, Industrial production, fixed asset investment and PPI for further clues on the health of the world's second largest economy.

Yesterday, official data showed China's trade surplus unexpectedly $US18.42 billion outpacing expectations of $US7.93 billion. Although it showed a significant surplus, the data showed imports grew at a much lower rate than anticipated, with exporting activity also failing to achieve estimates. We saw general short-term weakness across China-contingent currencies with the Aussie dollar grinding lower in the period to follow given the data showed weakening of domestic demand. At the time of writing the Australian dollar is buying 100.6 US cents.

http://au.ibtimes.com/articles/339780/20120511/forex.htm