• Aussie dollar continues to drift on greenback strength, despite surge in job creation;
• Opinion poll suggests that support for Scottish independence is subsiding, Sterling supported;
• Fed speculation continues to drive the greenback, despite uplift in jobless claims.
As markets struggled to identify a credible explanation for yesterday’s surprise surge in August employment change data, scepticism took over, eventually sending the Aussie dollar below $0.91 overnight. Data showed unemployment dropped to 6.1% in August after a surprise surge to 6.4% in the previous month with 121k new jobs created in August vs expectations of 15k. The headline numbers initially sent the Aussie dollar up over 60 points against the greenback eventually paring gains as investors failed to come to terms with the data that was largely made up of a surge in part-time jobs. It appears that as Chinese demand for commodities dwindles, mining companies have begun to cut full-time jobs, suggesting that the employment outlook in the longer term remains uncertain. Data from China yesterday showed that headline inflation slowed to 2% in August from 2.3% the previous month suggesting loose Chinese monetary policy is here to stay for some time.
It was only recently that markets became so caught up in the Scottish vote of independence after a YouGov poll showed the Scottish nationalists take the lead for the first time, sparking fear that we may see a break-up of the 300-year old union. Fresh opinion poll data put the ‘No’ camp in front overnight, giving the pound room to breathe and focus on the UK’s economic recovery. With additional opinion polls on the way ahead of the vote next Thursday, we see Sterling gains as being limited until such uncertainty is lifted. Given such detrimental effects that a ‘Yes’ vote would have on Scotland’s economy, at least in the short term, we expect that sense will prevail and Sterling can recover following Thursday’s vote.
Speculation that the Federal Reserve will raise rates by the middle of next year has been the dominant theme throughout the week, following a report from the San Francisco Fed that markets are underestimating the chance of a rate hike. Ahead of next week’s FOMC meeting, the dollar index has risen to a 14-month high, shrugging off a weaker non-farms number last week as the data is unlikely to sway the Fed. Overnight we saw initial jobless claims unexpectedly rise last week which saw the dollar pull back slightly, however losses were short lived as the dollar bull stampede squashed any sellers.