Asian Market Update: AUD/USD moves away from 1-yr highs, as labor report clouds domestic interest rate outlook; NZD/USD trades below $0.7000 as RBNZ avoids move to neutral bias

- In Australia, the August employment change declined by a worse than expected 27.1K (AUSTRALIA AUG EMPLOYMENT CHANGE: -27.1K V -15KE; UNEMPLOYMENT RATE: 5.8% V 5.9%E). The employment change decline came as full- time employment dropped by 30.8K versus the prior decline of 17.3K. Additionally, Australia's unemployment rate held steady at 5.8%. Today's weaker than expected employment change data, coupled with the unexpected decline in July retail sales, has raised questions regarding when the Reserve Bank of Australia expects to raise rates. Following today's employment data, according to 30-day interbank futures, markets were pricing in only 3 basis points of rate hikes in Oct. In other Australian economic data, Sept consumer inflation expectations remained at 3.5%.

- The Reserve Bank of New Zealand, as expected, left its target rate unchanged at 2.50% at today's monetary policy meeting. In terms of the central bank's future bias, RBNZ Gov Bollard noted that the time to get to a rate of neutral is far away, as he reiterated that rates would be kept at or below 2.5% until late 2010. With respect to growth, the RBNZ noted that the domestic economy may start to grow in Q3. Also, the RBNZ expects inflation to remain within its target band. On the New Zealand dollar, the central bank continued to express concerns about its appreciation. According to the RBNZ's Governor Bollard, the NZD is overvalued and will likely decline going forward on fundamentals. In other New Zealand news, the Q2 terms of trade worsened more than expected, as export prices declined by 11.6% q/q, which was the largest decline in more than 50 years [NEW ZEALAND Q2 TERMS OF TRADE INDEX Q/Q: -9.0% V -3.2%E (prior revised to -2.7% from -3.0%)]. New Zealand's Q2 export prices were weighed down by prices for dairy products.

- In South Korea, the Bank of Korea left interest rates unchanged at 2.00%, as expected. The central bank said it would maintain its monetary easing stance for the time being. However, the Bank of Korea's Governor Lee expressed concerns regarding the appreciation of domestic property prices. Also, Lee said the Bank of Korea could raise rates, while maintaining its easing stance if needed.

- In terms of Japanese data, July machine orders were weaker than expected (JAPAN JULY MACHINE ORDERS M/M: -9.3% V -3.5%E; Y/Y: -34.8% V -31%E). However, the Japanese Cabinet Office reiterated that the pace of decline for machine orders was slowing. In other Japanese data, the Aug corporate goods price index or CGPI came in lower than expected, as deflationary worries persists in Japan (JAPAN AUG DOMESTIC CGPI M/M: 0.0% V 0.2%E; Y/Y: -8.5% V -8.4%E).

- In currencies, The AUD has declined by more than 0.20% against both the USD and JPY, following the disappointing employment data. Additionally, AUD/NZD has lost more than 0.40%. The Japanese yen has moved off of its worst levels against most currencies, as the drop in AUD/JPY has weighed on other yen pairs. The US dollar is lower against the European major currencies, along with the Canadian and New Zealand dollars. The dollar is being weighed down by the gains in equities and commodity prices.

Most Asian equities indices are higher, led by technology and financial companies. The technology companies are gaining, after Texas Instruments raised its Q3 outlook in its mid-quarter update. The Nikkei 225, Kospi, and Hang Seng are all higher by more than 1%. However, the Shanghai Composite ended the morning break lower by close to 1% on broad based selling. Taiwan's Taiex is higher by more than 1.2%, as financial companies have been supported by a press report noting that China and Taiwan may soon sign a memorandum of understanding, which would increase investment opportunities in each nation's financial industry. Australia's S&P ASX 200 is higher by more than 0.50%, led by telecoms.
However, the upside for Australian equities on today's session has been capped by the earlier released employment data.

- Crude oil prices are higher by more than 0.50% and trading above $71.50/bbl. Crude prices have been supported by the weekly API data, released after the US close (API PETROLEUM INVENTORIES: CRUDE: -7.2M V -1.6ME; GASOLINE: +571K V -1.4ME). In terms of OPEC, as expected, the cartel left its production quotas unchanged. In its statement, OPEC noted that members were asked to increase their compliance levels with current quotas. Also, OPEC noted that it was seeing signs that oil demand will pickup in 2010. Spot Gold prices are higher by more than $1.50 and trading near $995/oz.