Aussie Stabilizes As NFP Falters

 | Oct 30, 2013 11:52AM ET

AUD/USD has edged higher in Wednesday trading, reversing the downward trend we've seen since the start of the week. Early in Wednesday's North American session, the pair is trading just shy of the 0.95 line. In economic news, it was another disappointing day in the US as ADP Nonfarm Payrolls looked awful, posting its worst reading in 2013. The markets are anxiously awaiting the Federal Reserve Policy Statement later in the day. In Australia, HIA New Home Sales jumped 6.4%, its sharpest gain in over a year. There are no Australian releases on Wednesday.

The Federal Reserve winds up a policy meeting on Wednesday, its first since Congress hammered out an agreement on the debt ceiling and reopened the government. However, the agreement is little more than a band-aid solution which has pushed off the debt ceiling and budget deadlock for a few months, without resolving these two issues. Meanwhile, recent US data, notably employment numbers, have been sluggish. Given this situation, the Fed is unlikely to push the taper trigger until early 2014. The markets will be waiting for the Fed policy statement later today, and we could see some volatility in the currency markets afterwards.

US employment numbers continue to sag, and the bad news continued on Wednesday with the ADP Nonfarm Payrolls report. The key indicator tumbled from 166 to 130 thousand, way off the estimate of 151 thousand. This was the weakest reading since November 2012, and points to a weak labor market. Last week, Unemployment Claims came in above the estimate and Non-Farm Payrolls tumbled to a six-month low.

Down Under, if RBA Governor Glenn Stevens was looking to scare the markets with some negative comments about the Australian dollar, he appears to have succeeded, at least temporarily. Stevens stated that the high level of the currency was not supported by the costs and productivity in the economy, and urged investors to tread carefully in the foreign exchange market. The RBA wants to see a lower Australian dollar, in order to boost the manufacturing and export sectors, which are struggling. The Bank is reluctant to lower interest rates right now, so it appears that Stevens is trying to "talk down" the currency. If the Australian dollar continues to trade at high levels, we can expect similar types of statements from the RBA.

In the US, the grim readings continued on Tuesday. PPI and Retail Sales both declined by 0.1%, missing the estimate of 0.2%. CB Consumer Confidence dropped sharply, from 79.7 to 71.2 points, a six-month low. This was well short of the estimate of 75.7 points. Core Retail Sales managed to match the forecast, rising to 0.4%. The mostly weak figures come on the heels of dismal housing numbers on Monday. If confidence in the US economy starts to weaken, we could see the dollar, which is already under pressure from the major currencies, lose ground.