US jobs data a sight for sore eyes

14.36 AEST, Monday 6 August 2012

US jobs data a sight for sore eyes

By Tim Waterer (Senior Trader, CMC Markets)

The healthier looking US employment data came as a sight for sore eyes for financial markets, with the result motivating investors to recommence the search for yield.

It was a no-win situation for the US Dollar. The better than expected job creation number reduced the appeal of safe haven currencies, while a tick up in the unemployment rate to 8.3% keeps QE3 in the picture. So whatever way you look at the numbers, the US Dollar was ultimately left out in the cold.

With little reason to buy US Dollars after the employment result, the Euro, gold and oil all made the best of the optimistic trading conditions to push higher as safe haven buying fell by the wayside.

The US jobs result also seemed to inject the market a dose of patience with regards to ECB action, with traders now apparently willing to give Draghi more time to deliver on his ‘whatever it takes’ mantra. It is amazing what difference a day makes after the initial market temper-tantrum due to the ECB inaction on Thursday.

The US jobs numbers reignited a rally in all things ‘risk’, with the Australian Dollar (AUD) being one of the currencies best placed to prosper from the subsequent surge in equity markets and commodities. The AUD has so far stopped short of hitting 1.06 against the US however a move beyond this level could eventuate this week if the RBA signal a reluctance to move lower on rates and if domestic employment data on Thursday justifies a ‘wait and see’ mentality by the central bank.

Conceivably the AUDUSD rate could reach 1.0670 in the coming days. Much will hinge on how long traders remain enamoured with the latest US employment figures.

The Australian share market quickly set about reversing Friday’s loss following the gains abroad on equity markets. Undoubtedly traders were heartened by the US employment report, with the weaker US Dollar and the resulting higher commodity prices providing a boon for our mining heavyweight stocks. RIO and BHP both did a u-turn from Friday’s performance, while the banks and retailers also enjoyed a run higher with investors feeling decidedly rosier over the global state of play.

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