Market Overview

Australian Unemployment Falls in July, Payrolls Rise

Australian Unemployment Falls in July, Payrolls Rise
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Australian payrolls rose and the unemployment rate fell in July, data released late Wednesday showed. That might indicate that Australia's economy is weathering the global economic slowdown relatively well following early and quick action from the Royal Bank of Australia to cut rates and boost the economy.

The nation added 14 thousand jobs in July, 40 percent better than the consensus economist estimate of 10 thousand jobs added. The data is also much better than the 28,300 jobs lost in June. The unemployment rate fell to 5.2 percent from an upwardly revised 5.3 percent in June on the gains in payrolls.

July's payrolls boost and unemployment rate drop may have confirmed the recent run-up in the Australian dollar. The AUD/USD cross rate has rallied from lows below 0.96 in June to above 1.06 earlier this week. However, the weak Chinese data trumped the bullish sentiment reflected in the Australian payrolls data, sending the Aussie back below 1.06 against the greenback. Even so, the data is likely good news for Australia's commodity-export driven economy.

The commodity-driven economy may be starting to feel the stimulus effects of rate cuts by the Royal Bank of Australia (RBA) earlier this year. Since May, the RBA has cut rates by a cumulative 75 basis points, from 4.25 percent to 3.5 percent. These rate cuts seem to be taking effect, boosting the economy and causing investors to once again begin piling into the Aussie dollar. The Aussie dollar tends to be a favorite for traders to put the carry trade on, so a strong Aussie generally points to overall risk-on sentiment in financial markets.

The S&P ASX index, the benchmark stock index in Australia, initially rallied on the strong data, but later sold off and closed lower. Weak Chinese data probably dampened some of the bullish sentiment. However, so long as China does not worsen too much, Australia may continue to grow. The drop in the Aussie dollar may be a good entry point for traders looking to take a position that will move with broad risk sentiment, as the Aussie usually does.

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