FX Update: The Aussie dollar rallied on Australian employment data
FX Update: The Aussie dollar rallied on Australian employment data, which expanded by 41k, well up on the median forecast for a 14k rise and with full-time positions making up a solid 34.5k of the total. Despite a 2.8% closing loss in the local ASX equity index, which markedly underperformed other Asian indexes, the data catalyzed a short-covering reaction in the forex market, lifting the recently heavily shorted AUD-USD pairing and AUD-JPY cross. The former rose by just over 30 pips in making an intraday high at 0.6788, though lost steam and left yesterday's peak at 0.6797 untested. Ditto for AUD-JPY, and the pairing and cross are still showing respective 3.3% and 5.3% declines from month-ago levels, declines that reflect the impact that trade warring, geopolitical concerns and looming threat of recession have been having on the China-exposed Australian dollar. Elsewhere, the other main dollar pairings and cross rates have been plying narrow ranges, with EUR-USD holding steady near 1.1150, for instance. Participants have turned non-committal again, and while Chinese equity markets have managed to limp back into the black, investor sentiment remains distinctly restive. The decline in safe government bond yields has the effect of increasing equity risk premiums, though this is offset by the increased recession risk in major economies such as the the U.S. and Europe. An inversion of the U.S. yield curve, which appeared yesterday for the first time since 2007, has portended each recession the U.S. economy has seen since 1955.