Interest rates unlikely to rise any time soon
The Reserve Bank (RBA) published its Statement on Monetary Policy on Friday. The RBA's outlook has not changed markedly since it last published its update in May.
It includes its forecasts on growth and inflation, which were broadly unchanged from May.
The major reason for the follow-up rate cut in August appears to be due to recent data showing that inflation is likely to remain below 2% per annum over the forecast period and that there was "room for even stronger growth".
There was no forward guidance or any signal for further monetary easing in today's Statement.
However, we doubt that inflation will pick up sufficiently because global forces are keeping inflation down.
Additionally, we do not expect that the domestic economy will grow strongly enough to warrant a sizeable fall in the unemployment rate and a pick-up in wage growth.
As a result, we expect that the RBA will continue to lower official interest rates to as low as 1.0%, and are expecting the next 25 basis point cut to occur in November 2016.
The US stockmarket strengthened on Friday night, as better than expected US payrolls data boosted sentiment regarding the outlook for US economic growth.
The Dow rose 1.0%, the S&P 500 gained 0.9% and the Nasdaq was up 1.1% for the session. Both the S&P 500 and the Nasdaq reached a new record high.
US government bond yields rose on Friday night, boosted by the strong payrolls numbers.
The 10-year government bond yield gained 9 basis points to 1.59% and the 2-year government bond yield rose by 8 basis points to 0.72%.
Market pricing of the Fed funds rate firmed, now implying around a 30% chance of a rate hike in September, a 55% chance by December, and 100% by September 2017.
After declining in Friday's session, Australian government bond yields (implied by futures) rose on Friday night, following the US lead.
The US dollar index jumped in response to the payrolls data, later slightly paring gains to currently trade up 0.6% from Friday morning.
EUR/USD fell from 1.1160 before the payrolls to 1.1046, before regaining some ground to trade at 1.1086 at the time of writing.
USD/JPY rose from 101.17 on Friday morning to 101.97 this morning.
AUD/USD fell from 0.7660 before the payrolls data, to 0.7598, and is trading around 0.7606 at the time of writing.
NZD fell from 0.7215 to 0.7122 in the wake of the payrolls numbers. AUD/NZD rose from 1.0620 to 1.0680.
Commodity prices were generally stronger overnight. The oil price however, was little changed, with a lift in investor sentiment negated by the stronger US dollar and an increased number of oil rigs in the US.
House prices fell 1.0% in July, according to the Halifax measure, after rising by 1.2% in June.
House prices rose 8.4% in the year to the July quarter, which was an unchanged pace of growth from the year to the June quarter.
Payrolls rose by 255k in July, surpassing consensus expectations for a 180k increase.
Revisions to the previous two months resulted in an additional 18k jobs. By industry, the job gains were fairly broad-based.
In July, there were jobs added in business services (+70k), retail (+15k), construction (+16k and the strongest since March) and manufacturing (+9k and the second consecutive monthly increase).
The separate household survey showed the unemployment rate held steady at 4.9% in July, with the labour force participation rate rising to 62.8% in July, from 62.7% in June.
Average hourly earnings were also stronger than expected, rising 0.3% in July. For the year to July, average hourly earnings rose 2.6%, an unchanged pace of growth from the year to June.
The trade deficit widened to US$44.5bn in June, from a deficit of US$41.0bn in May.
Exports rose 0.3% in June, while imports gained 1.9%, causing the deficit to widen further. For the year to June, exports have declined 3.8%, while imports fell by 2.4%.