Andrew Wilkinson @ 8:41 AM, Thursday December 10 2009
The big overnight news from Asia comes in the form of a surprisingly strong Australian
jobs report, which has helped bump the local dollar up sharply against
currencies of lower yielding nations. Elsewhere China’s
State Council also fleshed out measures to boost consumption in order to
maintain its health above-8% GDP growth but without encouraging excesses that
have led to the highest pace of home price increases in many years.
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The RBA’s deputy governor told reporters today that
owing to the yield differential between the Aussie and other developed nations’
currencies, the “carry trade appears to be back in vogue.” Expectations for
further interest rate increases in the nation nicknamed “the wonder from down
under” were stepped up following the addition of 30,200 jobs of which only 300
were part-time. To put things in perspective, while the market was only
anticipating a rise of 5,000 full and part time jobs overall, today’s report for
November brings the total number of jobs created to just 500 short of 100,000 in
three months.
The jobless rate declined one-tenth to 5.7% as mining
companies added to their labor force in order to provide sufficient output to
satiate demand from China. Only this week the Governor
Stevens at the RBA noted that his nation’s mining industry was the envy of the
world as it got back close to full capacity. Yet the rebound in Australian
activity is widespread with retailers also adding jobs and business confidence
continues to rise.
Still, there was more positive news from Australia’s biggest trading partner
overnight as the State Council posted changes to its stimulus plans. It seeks to
prolong the economic recovery while reduce a potential speculative sideshow. For
instance the government lengthened the holding period for homes in order to
qualify for a tax credit. It used to be the case that sales tax would not be
charged to sellers who owned property for two years. Today it was announced that
the duration will rise to five years in the hope that the government can stave
off hot money flowing into real estate seeking to take advantage from easy
fiscal policy.
The government also maintained its measures to boost
consumption by extending the duration of subsidies from appliances, autos and
farming equipment in rural areas.
Aussie dollar – The
Australian unit rose to 91.65 U.S. cents as a result of the firm data on
Thursday, bolstered by the potential for more interest rate rises, which would
boost the yield advantage it carries over low-yielding currencies.
U.S. dollar –The
dollar is broadly lower although rose against the Japanese yen. Today delivers
the weekly initial claims report, expected to show a third straight week of
claimants below 500,000. This should be a slam-dunk in light of last week’s
clear show of labor market recovery. The last time claims were below half a
million per week was in August 2008. The strength in the dollar during the past
week has been responsible for driving back down the value of many alternative
asset prices. Gold has slipped 8.3% from its recent peak just one week ago as
the dollar vies for control. It would, however, be a mistake to confuse falling
commodity prices with signs of economic slowdown.
Japanese yen –The
yen ceded ground to the higher yields available on New Zealand and Australia following the glowing
Aussie jobs report. The recent strengthening of the yen against the dollar
served to remind investors that profits earned abroad may translate to lower
profits in yen terms, which helped undermine equity prices regionally today. The
Nikkei dropped 1.4% as the yen fell against the dollar to ¥88.34.
British pound – The
Bank of England chose to take no further action at its final meeting for 2009 in
a year that the Chancellor of the Exchequer now expects will see a GDP
contraction of 4.75%. The Bank left its short benchmark rate at 0.5% today and
maintained its plans to purchase no more nor any less than the £200 billion in
progress. The pound rebounded slightly against the dollar after a dose of
pessimism following the Chancellor’s pre-budget delivery to lawmakers on
Wednesday. The pound currently buys $1.6298 U.S. cents.
Euro –A whiff of
inflation in the form of stronger German wholesale price data for November was
partially responsible for investors lacking the desire to sell further the euro
today. The euro rose and currently buys $1.4730 while it diminished against the
rebounding pound to buy 90.40 pence.
Canadian dollar –
Canada’s dollar has rebounded sharply
against the U.S. dollar in a move that started just after lunchtime on
Wednesday. The fact that Canada remains a key role in
commodity production helps explain the positive tone this morning following the
Australian jobs report. The dollar buys 95.21 U.S. cents this morning and is far
closer to Friday’s peak at 95.80 following Canada’s own blowout employment data that was
eclipsed by U.S. payroll growth. The intraweek
low for the Canadian dollar stands at 93.70 U.S. cents.
Andrew Wilkinson
Senior Market Analyst
Interactive Brokers Group
