A$ rallies on bittersweet jobs data

After maintaining a slow grind lower overnight, the Aussie’s been given a new lease on life on the back of the local jobs print. At first glance a drop in the official unemployment rate may be a positive outcome, nevertheless, look a little deeper and you’ll see a steep drop in part-time employment, meager full-time gains, and an increase in the amount of discouraged job seekers. The headline print showed net losses of 8,800 jobs in August, with 9,300 part-time jobs losses while full-time employment rose by 600. The bittersweet surprise was the drop in the official jobless rate from 5.2 to 5.1 percent; however we can attribute this to a fall in the participation rate. Quite simply, the less job seeker’s in the economy, the better the unemployment rate will look – in short, it’s a false positive.

Nevertheless, it appears markets remain transfixed on the headline rate which outpaced expectations despite the rather uninspiring finer points.  An excess of short-players leading into the release prompted a shift to the upside in the ensuing period as traders digested the release in the context of the RBA’s next move. The local unit is currently trading at 102.2 US cents up around 0.25 percent on the day and performing solidly across the board.

With only a short period of time until European Central Bank President Mario Draghi takes the stage, markets remained transfixed on possible outcomes overnight in what’s expected to be a key inflection point in the long running European debt crises. According to reports, the European Central Bank will not enter a quantitative easing style intervention, with capital injected into peripheral bond markets to be sterilized, which requires the bank to take the equivalent amount of funds out of the financial system in an effort to avoid stoking inflation.  The prospect of the ECB setting yield caps appears to be off the table, which is considered untenable in the context of the potentially unlimited funds the bank will need to throw at the market to maintain predetermined yield caps or spreads. Nevertheless, it’s expected the ECB will not place any explicit cap or budget on how debt they could buy. The plan, which is expected to be unveiled at tonight’s policy meeting, has put markets in high expectancy mode, suggesting a strong of disappointment should the plan fail to appease. This also implicates high-beta currencies such as the Aussie dollar which remain very much at the mercy of risk trends. Should Draghi’s plan fail to appease, today’s gains may be immaterial in comparison to possible downside as investors flock to safe-haven units such as the U.S dollar.


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