Australian Dollar Strengthened After The Labor Market Data - 14.3.2013

The US dollar index rose to a new 7-month high the previous day, reaching 83.02, after the strong retail sales data. The gauge rose by 1.1% in February, much higher than the growth forecasts by 0.5%. The February increase was also the most significant in the last 5 months, reviving hopes that the largest world economy will be able to show good results in 2013, despite the fiscal problems. As we expected, the strong statistics for the current year keeps supporting the US currency. Even if this does not make the Fed prematurely cut programs supporting the economy, it certainly put doubts on their future expansion. In contrast with the expectations of monetary expansion in Japan, UK and the Eurozone the US dollar gets a significant advantage. As for the European currency, it is still under pressure of political risks and weak economic outlook. The single currency fell against the US dollar yesterday to a 3-month low at 1.2923. The currency pair remained near 1.2950 during the morning trading hours. The auction on Italian bonds was held yesterday. The result of 3-year bond sale is that the government was forced to pay the highest rate since last December. Bond yields rose to 2.48%, compared to 2.30% at the February auction. Today is the turn of Spain to test the level of investor confidence concerning the public finance stability - the long-term bond auction are yet to be held. The best dynamics among the major currencies was shown by the Australian dollar. The AUDUSD currency pair rose this morning to a 5-week high at 1.0380. The reason is the confident labor market data in Australia, the number of employees in February rose by 71500, compared with modest growth forecasts of 10000. It is noteworthy that the steady employment increase occurred not only due to part-time employment increase, but also due to growing number of full-time employees. A good labor market report, along with other recent signs of increasing economic activity (January retail sales, consumer confidence junm to a 27-month high, and the 3.1% GDP growth in the fourth quarter of last year) may amplify investors confidence that the RBA will not take further steps to ease monetary policy that began in November 2011.