HomeContributorsFundamental AnalysisAUD On The Rise Amid Solid Jobs Report, ECB On The Sidelines

AUD On The Rise Amid Solid Jobs Report, ECB On The Sidelines

AUD on a winning strike amid solid job report

The Australian dollar extended gains for the fifth consecutive days after the Australian Bureau of Statistics (ABS) released a better-than-expected November job report. Although the unemployment rate held steady at 5.4%, employment increased by 61,600 (seasonally adjusted), beating widely median forecast of 19,000. Moreover, the good news is that most of those news jobs are full time jobs (+41,900). Part time jobs increased by 19,700. Finally, the unemployment rate held steady for the simple reason that the participation jumped to 65.5% from 65.2% in the previous month.

This is definitely a good news for the Aussie economy, as it would translate, over time, into firmer price pressures, which could only please the RBA and help in its mission to lift inflation within 2%-3% target range.

Since the beginning of the week, the Aussie has gained more 2.50% against the greenback. AUD/USD is currently testing the $0.77 resistance area (high from 7th November and psychological threshold). Beside the positive push from rising commodity prices, the interest differential between US 2y yield and Australia ones has started to widen slightly since the beginning of the month increases incentives to go long Aussie.

ECB meeting: Draghi is buying time

The ECB meeting did not bring anything new on the table. The European Central Bank has held its rates unchanged and increased its forecast for growth for the next years. In addition, officials believe that the inflation won’t reach the target by 2020. This is what we call “Buying Time” to actually let inflation run.

It is without surprise that ECB members renewed their commitment regarding the asset purchase program that should run until next September. The amount added on the overall money supply each month is clearly massive and growth is exponential. Mario Draghi was very happy of “the strong pace of economic expansion” as well as the usual “improvement in the growth outlook”. Unfortunately we did not have a word concerning the cost of the growth. The truth is that one euro of growth costs way more than what it brings.

As for the Fed, the key for the ECB is to let inflation run without raising rates in order to kill the massive debt accumulated. By stating that the inflation is too low, the ECB is selling a dovish message that markets are too happy to buy as assets never stops to increase. And then the ECB is getting time hoping that inflation goes higher.

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