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Australian Dollar Gained as Aussie Economy Shows Strength

Australian Dollar Gained as Aussie Economy Shows Strength

2012-08-09 03:05:00
Gary Kerdus,
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THE TAKEWAY: Australian labor market increased its work force, Chinese consumer prices elevated > Expectations for interest rate cuts by the RBA may have lessened > Australian Dollar strengthened

The Australian Dollar gained versus the U.S. Dollar as the Aussie economy added 14,000 jobs in July, up sharply from a 28,300 job reduction in June. Full time employment accounted for 9,200 added jobs and part time additions accounted for the remaining 4,800 jobs.

The positive jobs report might suggest a pickup in business confidence as hiring managers tend to increase their staff when the future prospect for an elevated economy appears more certain. Moreover, a growing labor force may signal to RBA policy officials that further stimulus measures may not be needed and therefore market expectations for interest rate cuts could be put on hold. Currently, markets appear to be pricing in a 30 percent chance of a 25 basis point reduction to the cost of borrowing by the RBA next month.

Moreover, Chinese CPI increased to 1.8 percent in July, down from 2.2 percent last month. Rising prices are typically a sign of economic strength. China is Australia’s largest trading partner and a healthy Chinese economy should help bolster economic strength for Australia.

Markets likely interpreted the positive jobs data along with increasing prices in China to mean that interest rate cut expectations may have been lessened. The Aussie currency is one of the highest yielding pairs to hold and is highly sensitive to interest rate expectations.

AUD/USD, 1 Minute Chart

Australian_Dollar_Gained_as_Aussie_Economy_Shows_Strength_body_Picture_1.png, Australian Dollar Gained as Aussie Economy Shows Strength

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