Aussie dollar surges after July jobs report

The Aussie dollar has surged 0.6% on the session and regained the key US$0.77 handle after 26,190 new jobs were added in July against market expectations for an additional 10,000 new jobs. This was perfect timing for the Aussie dollar, which had seen momentum coming out of its upward move over the past two sessions.

Source: Bloomberg

The pullback in the US dollar in the wake of the more-dovish-than-expected Fed minutes alongside a bounce in commodities in the Asian session seems to have renewed investor appetite for the Aussie dollar.

In a way, it’s odd for the Aussie dollar to rally so much on domestic data, considering the RBA recently cut interest rates, painted a dismal picture on the outlook for inflation and made a fairly good case for two more rate cuts to happen over the next twelve months and the AUD only rallied in response. The support for the Aussie dollar is much more a reflection of the macro picture. The USD has steadily sold off after its big 2Q GDP miss as expectations for a rate rise in 2016 continue to ebb away. As the prospect for a rise in US yields dissipates and Bank of England (BoE), European Central Bank (ECB) and Bank of Japan (BoJ) bond buying continues to depress yields, the yield appeal of the AUD continues to hold. But also as central banks strain at the bounds of monetary policy, calls have been growing louder for governments to step in and pull their weight by upping fiscal spending. The prospect for fiscal spending to kickstart a pickup in the industrial cycle is being met with resounding support in commodity prices. And the AUD, as a commodity currency, is also a key beneficiary of the steady push towards more global fiscal intervention. In such a scenario, there is a good chance the AUD breaks through US$0.78, maybe even moving up to US$0.80 if we see some key misses in US data.

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That does not mean that all is well with the Australian domestic economy. Despite the reaction in the currency, the Reserve Bank of Australia (RBA) are likely to look at this jobs report with a far more critical eye and no doubt their focus will rest on the massive 45,400 decline in full-time jobs, which was only offset by an enormous 71,600 part-time jobs. When one looks at the size of those numbers it is hard to be fully reassured about the accuracy of the ABS’s jobs data.

Nonetheless, the year-on-year growth in total jobs is steadily easing, reaching 1.9% growth in July.

But likely the bigger concern for the RBA is the dramatic decline seen in full-time employment growth over the past year. Year-on-year growth hit a multi-year high of 2.6% in November last year, but has steadily decline since registering only 0.4% growth in July. Given the growing concern over the decline in wage growth in Australia weighing on core inflation measures, the dramatic collapse in full-time job growth is unlikely to be welcomed within the RBA.

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