Bell FX Currency Outlook: The Australian Dollar rallied after Europe's central bank unveiled an unlimited but conditional bond-buying program to help alleviate the euro zone's sovereign debt crisis.
To gain access, countries have to be part of a new precautionary rescue program called the Enhance Conditions Credit Line (ECCL). The IMF will be involved in the ECCL. Countries under a full bailout (Greece, Portugal and Ireland) can't get
access to the OMT until they regain bond market access (Ireland arguably
could be eligible, as they have limited access).
The stated aim of last night's policy announcement is to "repair" the monetary transmission mechanism within the euro zone and to provide a "backstop" for pressured economies. Importantly, the design of the program (with an emphasis on
conditionality) maintains the pressure on national governments to continue to pursue fiscal consolidation and structural reforms.
This announcement led a spike in 'risk' so we saw a fall in the US dollar and the commodity currencies (AUD, NZD, ZAR and CAD) gaining. On. Australian labour data for August was released yesterday and didn't provide any surprises with most market watchers predicting a slow increase in the jobless rate will occur in the next 6 months, prompting more speculation for the RBA cut
In Australia today, Trade data for July is due with a predicted deficit of $300m. More importantly, the US Non-farm Payrolls report for August is out tonight and the market is expecting a rise in jobs of 130K leaving the unemployment rate unchanged at 8.3%. This will figure in the Fed's FOMC decision making next week.
If there is no further reduction in unemployment, this will add to Bernanke's case for more economic stimulus and this could well lead to the AUD resuming its downward fall seen this week.
Majors: In currency markets, the JPY was the only currency that weakened against the US Dollar. US Equities were higher as were European markets with Frankfurt up 2.9%, Paris 3.1% and London 2.1%.
On commodity markets, WTI oil rose 0.2% and LME Base metals slipped 0.2%. Offshore tonight, German Industrial Production is due and could be important, given rising anxiety that Germany's economy is slowing markedly.
This data will provide a timely read on China's economy. The market is expecting little change. The big number though, as written is the US Nonfarm Payrolls report for August.
07 SEPT AU Trade Balance
UK Industrial Production
US Unemployment Rate
US Change in NonFarm Payrolls
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