The Australian economy still looks to be firing on all cylinders

The Australian economy still looks to be firing on all cylinders

A hefty number of full-time jobs added in August

Market Comments:
The CAD was in the spotlight overnight as the BOC hiked rates by 25bp to 1.0%, as expected, but held a slightly more hawkish tone in the accompanying statement than the market had been expecting. However, whilst saying that Canadian consumption and investment was expected to stay strong and that financial conditions are still "exceptionally stimulative", it did express some degree of uncertainty on the future. With an equally impressive Ivey PMI reading (65.9 versus 55.5 expected and 54.0 previously, USDCAD pushed aggressively lower having just taken a short peep above the major resistance at 1.0480.

In other currencies, the JPY also grabbed some of the attention with rumours circulating that intervention might be imminent after talk that the BOJ had been checking rates and that Japanese banks had been forewarned of intervention last night. That never materialized but nevertheless USDJPY squeezed higher as US yields ticked upwards. EURSEK slid to two-year lows as Swedish Q2 GDP was revised aggressively higher.

The only US release overnight was the Fed’s Beige Book which indicated that the US economy was probably still growing, albeit at a slower pace, although more Districts saw slowing activity and subdued price pressures than in July. It would appear that a relatively flat beige Book was viewed as a good thing as Wall St rebounded, partly encouraged also by Obama’s latest economic stimulus ideas.

The major focus for the Asian session was the Australian unemployment report – and not without reason. The Australian economy added another 30,500 jobs during August, well above the market’s expectations and extending the current run of adding jobs to six months. Perhaps more encouraging, a total of 53,100 full-time jobs were added while 22,100 part-time jobs were lost. As a result the unemployment rate dipped to 5.1% from 5.3% (expected 5.2%) and the AUD surged a quick 40 points, breaking upwards to a 4-month high. RBA Assistant Governor Debelle also commented that conditions in world financial markets remained fragile but a greater risk appetite was seeing a return of the carry trade and hence demand for the AUD. Combining today’s data with last week’s strong Q2 GDP numbers, short-term interest rate markets are starting to look at a possible rate hike at the October RBA meeting again, with chances rising to 25% from 9% prior to the data.

In late developments, the EUR retreated from the day’s highs as markets reacted to a news item in the German edition of the FT where ECB’s chief economist Juergen Stark said that German banks need more capital. In a similar vein to the WSJ’s report on bank stress tests, this looks to be taking some of the shine off risk appetite as the Asian session comes to an end.

Heading into Europe and we CPI data from Germany and Sweden, UK trade data and the BOE’s MPC decision (no change in either rates or QE expected). For the North American session, Canada’s housing starts and trade data along with US trade data and weekly jobless claims are on tap.

Economic Data Highlights

• CA Bank of Canada hikes rates by 25bp to 1.0%
• CA Aug. Ivey PMI out at 65.9 vs. 55.5 expected and 54.0 prior
• US Jul. Consumer Credit out at -$3.6b vs. -$4.7b expected and revised -$1.0b prior
• NZ Q2 Manufacturing Activity out at +3.1% q/q vs. revised +1.4% prior
• JP Q3 BSI Large All Industry Conditions out at +7.1% q/q vs. 4.0% prior
• JP Q3 BSI Large Manufacturing Conditions out at +13.3% q/q vs. 10.0% prior
• AU Aug. Employment Change out at +30.9k vs. +25.0k expected and revised +25.0k prior
• AU Aug. Unemployment Rate out at 5.1% vs. 5.2% expected and 5.3% prior
• AU Aug. Participation rate out at 65.4% vs. 65.5% expected and 65.5% prior
• JP Aug. Consumer Confidence out at 42.5 vs. 43.4 prior

Upcoming Economic Calendar Highlights
(All Times GMT)

• GE CPI (0600)
• Sweden CPI (0730)
• UK Trade Data Trade Data (0600)
• UK BOE Rate Announcement (1100)
• CA Housing Starts (1215)
• CA Int’l Merchandise Trade (1230)
• US Trade Balance (1230)
• US Initial Jobless Claims (1230)