Can Aussie Jobs and Chinese CPI Slow the Risk Rally?

Risk trades once again climbed higher on Wednesday, led by stock markets. The euro was the top performer helped by comments from Mersch while the kiwi lagged. The Australian dollar has been on the sidelines of the risk rally but that could change with employment numbers and Chinese CPI. EURUSD nears its 100 DMA, which is a confluence with100 WMA. We added 2 new trades and shorts in EURAUD, which can be seen in the latest Premium Insights.

The ECB is building a new playbook as it looks for ways to restart lending. Governing Council member Mersch hinted that policymakers are brainstorming on programs and the German press said SME loans could be securitize. This is a new phase for the ECB and as long as the programs don't entail QE style money printing, the euro will respond positively.

EUR/USD rallied early in trading on upbeat German data but the rally was sustained by a hint at action from Mersch and it ran as high as 1.3193 before sliding back to 1.3155.

FX hasn't been overly correlated with stocks over the past month but traders should be aware of the risks of an equity market pullback if the newsflow worsens before the weekend. The S&P 500 has risen for 5 consecutive days and 12 of the past 14. In the past month, AUD/JPY has had a high correlation with stocks.

The other risk for the Aussie in the upcoming session is from the April employment report at 0130 GMT. Economists expect 11K new jobs and a steady 5.6% unemployment rate. The upside and downside risks are equal with this report and the full/part-time breakdown is an important secondary consideration.

At the same time, China will release April CPI numbers. The inflation index is expected up 2.3% y/y, accelerating from 2.1% in March. Rising inflation could lead China to tighten policy, which would hurt AUD. Alternatively, a steady 2.1% reading or lower could help to boost AUD.

With both releases scheduled for the same time, expect some volatile swings.