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    Aussie lifted from strong jobs growth and bounce in Chinese shares

    The Australian dollar got some respite on Thursday after heavy losses over the past week have sent it tumbling to six-year lows. Better-than expected employment figures as well as signs of stabilization in China’s stock market helped the aussie make gains of 1% in Asian trading on Thursday.

    Unemployment in Australia rose to 6.0% in June from a downwardly revised 5.9% in May. Expectations were for a figure of 6.1%. Employment increased by 7,300 to 11,768,600, versus estimates there would be no change, while unemployment increased by 12,800 to 756,100.  There was also small improvement of 0.1% in the labor participation rate, which rose to 64.8%.

    The strong data will make it more difficult for the Reserve Bank of Australia to make further cuts to its cash rate, which currently stands at 2% following two cuts of 25 basis points already this year. Both employment and GDP growth have defied the RBA’s expectations that they would be more adversely affected by the mining sector, which has suffered significantly from a slump in iron ore prices.

    The Australian dollar has largely followed commodity prices lower since 2013. Today’s rise is even more impressive given Wednesday’s huge drop of 10.1% in iron ore prices. The slowing Chinese economy has been the main catalyst for falling iron ore prices, a key ingredient for steel. As construction activity slows, so has the demand for steel.

    The recent turmoil in China’s stock markets has added to the aussie’s woes. Markets are worried that China’s stock market crash will lead to lower consumer spending given that a large portion of investors in China’s stocks are private individuals. This would put additional drag on China’s economic growth, which has already slowed to near 2009 levels at the height of the crisis.

    Chinese authorities were forced to intervene with unconventional measures to boost liquidity in the equities markets, which have fallen by around 30% since mid-June. The decline does not seem so severe when considering that they have risen by 150% over the past year and the authorities may have risked creating further panic with the announced measures.

    But signs of stabilization appeared today as the two main indices rose sharply, with the Shanghai SE Composite closing 5.8% higher and the Shenzen CSI 300 Composite up by 6.4%. This may give the aussie some short-term support but with the RBA openly calling for further depreciation in the currency, further declines to fresh six-year lows are likely in the weeks ahead.

    Having hit a low of 0.7371 against the US dollar on Wednesday, the aussie hit a peak of 0.74907 earlier today. But it was unable to hold on to its gains and dropped to 0.7427 in European trade.

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