AUD/USD: Australia’s jobs report has few implications for RBA despite jobs surge

Australia’s August labour force survey had something for both the Australian dollar bulls and bears, but in the end the detail does not meaningfully change the outlook for interest rates: the RBA looks set to leave the cash rate on hold for the foreseeable future.

AUD/USD strength fades as jobs surge masks increased labour market slack

According to the Australian Bureau of Statistics (ABS), employment surged by 64,900, more than doubling the increase expected and easily offsetting the modest decline reported a month earlier. Impressively, the labour force participation rate climbed to 67%, indicating a record share of Australia’s working age population is now in or looking for work.

What’s not to like, right?

Well, one consequence of the increase in participation was the unemployment rate held at 3.7%, missing expectations for a decline to 3.6%. Most of the reported increase in employment came from part-time workers, contributing to a surprise fall in total hours worked. Importantly, unemployment and underutilisation increased by two-tenths apiece, signaling an increase in labour market slack.

The latter point is important.

These broader measures of labour market tightness have far stronger inverse relationship to wage pressures than unemployment, so the increase reported in August does not bode well for a continued acceleration in wage growth. For a central bank concerned about stronger wages growth pushing up services costs, this diminishes the risk of the RBA needing to add to monetary policy tightening already delivered.

Three failures at .6450 for AUD/USD

After initially popping higher on the headline jobs number, the AUD/USD is now trading lower than before the data print, reflecting the data does not really move the needle on the outlook for interest rates.

Looking at the hourly chart, AUD/USD has now failed to clear .6450 on three occasions over the past week. That level needs to be overcome to see the pair move into the top of the recent trading range, opening the path for a potential test of the triple-top found at .6520.

Given upcoming risk events, the ECB’s September monetary policy meeting looms as the most likely catalyst to see the AUD/USD break out of its current range. With markets pricing in two-in-three chance of a 25 basis point being delivered, the ECB will likely have to hike and retain a hawkish rates bias in order to generate strength in the euro and place the US dollar under pressures.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.