US stocks rallied and the greenback slid on Friday with the latest nonfarm payrolls print rebooting expectations the Federal Reserve will announce new stimulus measures at this week’s policy meeting. The US economy created 96,000 jobs in August from a downwardly revised 141,000 in July, falling short of economists’ consensus estimates of 130,000 payrolls. Downward revisions were made for both June and July totaling 41,000 fewer jobs than originally reported. The finer points of the release showed gains were driven by service based industry and health care, but were partially offset by manufacturing losses. A concession to the shortfall was a dip in the official unemployment rate, which edged down from 8.3 to 8.1 percent, although investors found little solace given it reflected a drop in the labor force participation rate. Since the beginning of this year, employment growth has averaged 139,000 per month, compared with an average monthly gain of 153,000 in 2011.
Despite the rather uninspiring employment print, markets continue to look at the incoming data pulse in the context of how it affects the chances of further Federal Reserve stimulus. With sub-par employment growth a primary consideration for the Fed, we’ve seen a material swing back in favor of further action by the Fed in this week’s FOMC meeting.
Over the course of last week, the performance of the Aussie dollar reflected broad negativity from a local standpoint, while remaining true to its ‘risk currency’ credentials with both ECB and Fed easing hopes prompting a solid return from intra-week lows of 101.65 US cents. Overall, the dollars reactive nature to U.S stimulus expectations won out, closing the week just shy of its weekly high of 104-figure. Broadly speaking, there’s a few general themes guiding the Aussie dollar’s fortunes and with local factors taking a back seat this week, the focus will remain on U.S stimulus, Europe, and releases from China. Data released from China over the weekend may weigh on the local unit in domestic trade today, with the latest inflation print rising to 2 percent in annual terms in August from 1.8 percent in July. Any indication that inflation is beginning to rear its ugly head is seen as a deterrent against new easing initiatives as authorities attempt to balance inflation risks while sustaining high levels of growth. The higher headline inflation rate was attributed to rise in food prices which rose 3.4 percent in annual terms from 2.4 percent in July. Retail Sales increased to 13.2 percent from 13.1 percent, while industrial output continued to reflect slower growth increasing 8.9 percent in August from 9.2 percent in July. After last week’s data onslaught, the local macro week ahead will be fairly light in comparison and we anticipate the same hybrid of factors to govern the local unit, with negativity surrounding China’s economic longevity while remaining at the mercy of central bank feedback from both sides of the Atlantic, but ultimately we consider this week’s FOMC policy decision to be of primary value.