Aussie Rises despite Rising Unemployment

The Aussie rose against the U.S. dollar and the euro on Thursday despite rising unemployment. At around 5:48 am GMT, the greenback traded around 0.9732, or 0.94% below its previous close. At the same time, the euro surrendered 0.51% of its value to stand around $1.3858.

The Aussie has managed to defy the odds and gather strength against the two major currencies despite disappointing jobs market results. According to the Australian Bureau of Statistics, Australia's unemployment rate increased to 5.1% in July from 4.9% in June. The results came as a surprise to the analysts, who expected the economy to add 13,750 new jobs. Instead, Australia's weakening economy slashed 100 jobs.

Australia has been the star performer among the developed countries in recent years. In fact, it was the only developed nation to avoid a recession following the financial markets meltdown. However, the Australian economy was hit hard by the Queensland floods, which have created havoc among the communities living there. At the same time, the floods interrupted mining operations in the area. Australia is abundant with natural resources and high price levels for a number of commodities have provided a lot of tailwind for its economy in recent years.

Things might be about to change. The debt crises in the United States and the Eurozone seem to be feeding on each other and there is increasing speculation that Europe and North America might be on their way to a double-dip recession. At the same time, China has to squeeze its belt ever tighter in its so far futile attempts to control rising inflation. China is the world's largest consumer of raw materials and an increasingly important trading partner for commodity exporters such as Australia. A slowdown in China might in fact be an equally big threat to the Australian economy as a debt fiasco in the Eurozone and the United States.

With signs that global demand is faltering, prices of commodities have started to come down. 

Crude oil, which has been trading around $100 for a while, has dropped to low eighties. Presently, crude oil stands around $82.81, or 1.41% above its previous close. Natural gas has sunk below the $4 barrier, falling 0.2% to trade around $3.995. At the same time, copper has rebounded in Thursday's early trading session, having fallen below the $4 mark as well. At the moment, copper stand around $4.008, or 2.84% above its previous close. The one exception in the downward trend for commodities is gold. The yellow metal has briefly moved past the $1,800 mark, but has retreated since. Currently, the yellow metal trades around $1,787.35, or 0.18% below its previous close. With debt woes mounting in the Eurozone and the United States, it seems only the sky is the limit for the world's most popular safe-haven.

More positive news for the Australian economy came from inflation expectations data. According to the Melbourne University Institute, consumers expect prices to increase by 2.7% in the next 12 months. In July, consumers expected prices to rise by 3.4%. The latest reduction in inflationary expectations might provide some room for the Reserve bank of Australia to cut its interest rates in an attempt to boost Australia's ailing economy. The Reserve bank of Australia has a price target for the country's inflation rate of 2%-3%. Lower interest rates might be good for the Australian economy. However, it should be bad news for the Aussie.

ACTION ITEMS:

Bullish:
Traders who believe that Australia's economy, helped by high commodity prices, will remain strong compared to the rest of the developed nations, which should provide some steam for the Aussie, might want to consider the following trades:

• Dow Jones-AIG Commodity Index Total Return ETN (NYSE: DJP) is a long play on commodities. DJP may rise if the prices of commodities increase.

• CurrencyShares Australian Dollar Trust ETF (NYSE: FXA [FREE Stock Trend Analysis]) is a long play on the Aussie. FXA may rise if the Aussie appreciates.

Bearish:
Traders who believe that a double dip recession might push prices of commodities much lower, which should create a lot of headwind for the Aussie, may consider an alternate positions:

• PowerShares DB Commodity Short ETN (NYSE: DDP) is a short play on commodities. DDP may rise if the prices of commodities decline.

• ETFS Short Australian Dollar Long US Dollar ETC ETF (SAD) is a short play on the Aussie. SAD may rise if the Aussie depreciates.