httpvh://www.youtube.com/watch?v=_mX24sasULg
Local unit rallies despite weak US data.
• Weak Non-farms lends tacit support for Fed decision.
• Overseas markets rally due to data and US tax announcement.
• Australian data reflects November rate hike.
The Aussie has rallied across the board this week, largely as a result of a weak employment figure out of the US. Even the most bearish economists predicted a strong showing in Friday’s Non-farm Payrolls (39K) however the figure came in well below even their estimates. Despite the poor figure, the AUD rallied as the news affirmed the recent Quantitative Easing announcement by the Fed and thus the interest rate differential between the higher yielding Aussie and currencies with lower interest rates. The particularly weak employment figure was a better outcome for a strengthening Aussie than the expected continued strengthening in US employment and the associated support in risk appetite.
Equity markets were flat in Friday’s overnight session as the weak jobs figure was offset by the prospect of continued low interest rates in the US. The equity markets this week however have been tossed higher by market bulls as a rally was established through otherwise positive economic data and a tax announcement in the US. Economic data in the UK and Eurozone were broadly positive resulting in the S&P 500 (3.62%) and FTSE100 (4.99%) putting on a significant amount of weight. A contentious announcement this week by the Obama administration to extend tax cuts established by his predecessor was seen as a positive by the market as they may contribute as much as 0.5-1.0% to GDP annually.
Locally, the economic data has been mediocre as the November RBA interest rate hike took its toll on some data releases. Retail Sales (-1.1%) was weak as were the AiG Performance of Services and Aig Performance of Construction Index, all heavily exposed to interest rate decisions. ANZ Job Advertisements (2.9%) and Home Loans (1.9%) were marginally better than expected while there was little movement in the AUD when interest rates were kept on hold on Tuesday. In extending this theme of unlikely interest rate hikes anytime soon, Governor Stevens mentioned that “there continues to be a degree of caution in spending and borrowing” and that “lending rates in the economy are now a little above average” signalling that we may not see a rate hike until Q2 2011. The AUD approached parity on Friday night and then again after the US tax announcement however levels of 99 US cents have proved unsustainable without a strong lead during local sessions. The AUDEUR has found a new high this week as risk is still attached to both Eurozone sovereign debt and the limitation of a one-size fits all monetary policy.
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