This week’s employment data in Australia confirmed, once more, that the South Pacific nation handles the coronavirus recession better than many other developed economies. The Australian economy created almost four times more jobs last month than expected, surprising even the more optimistic scenario.
However, the AUD did not react as one would expect. It did rally against the USD, but not against the EUR, for example. Just the opposite – the EURAUD cross traded with a bullish tone all week, yesterday reaching the 1.6530 area just before the New York traders prepared for the market closing.
How come the economic data does not mean what it used to? Since when tripling the expected jobs number does not mean much for a currency?
The right answer? It has always been the same.
Summer Trading and Correlated Market Matter More Than Economic Data
One answer is that summer trading conditions govern the markets. In plain English – we are all at the trading algorithm’s mercy.
What is funny is that this is nothing new. Every year similar things happen around certain calendar dates. The summer period is one of them. Thanksgiving and Christmas too. And so on.
During such times, the financial market community focuses less on the market and more on the holidays. As such, trading algorithms and correlations dominate the price action. Things that do not make sense otherwise are seen everywhere.
Coming back to the Australian Dollar (AUD), this is a commodity currency. Because commodities like gold and silver exploded higher in the past months, the AUD, naturally, trades with a bid tone. That is, a bid tone against the same fiat currency the gold and silver markets rally against—namely, the USD.
Such a correlation is poised to continue as long as commodities prices keep rising. The unusual thing is that the AUD trades with an offered tone against the EUR, for example, and extremely bid against the USD. Which makes the cross, the EURAUD, extremely bid on all dips.
This is the clue that indicates trading algorithms dominating the price action in crosses. The EURGBP is another example of a cross pair that lives in its own world, just like the EURAUD.
To sum up, the jobs data in Australia is simply stellar. Compared with other parts of the world, it looks like a V-shape recovery – a much-needed one during the first recession in decades.
Yet, the market’s reaction is sluggish, testing traders’ patience, as it often does. Savvy traders know what to do – ignore the noise and focus on the real deal.