Will this week’s Australian jobs numbers convince the Reserve Bank of Australia (RBA) to hike rates again?
Here are major points you need to know if you’re planning on trading Australia’s labor market report this week:
Event in Focus:
Australia’s April Employment Data: Employment Change, Unemployment Rate
When Will it Be Released:
August 17, 2023 (Thursday) 1:30 am GMT
Use our Forex Market Hours tool to convert GMT to your local time zone.
Expectations:
14,700 net jobs added for the month of July, lower than the 32.6K jobs added in June
Unemployment rate to tick higher from 3.5% to 3.6%
Relevant Data Since Last Event/Data Release:
ANZ job advertisements recovered by 0.4% m/m in July, following downgraded 2.7% slump in June
NAB business confidence index improved from -1 to +2 in July, as employment held steady at above-average levels
S&P Global flash manufacturing PMI for July improved from 48.2 to 49.6 as the employment component dipped again but stayed above 50
S&P Global flash services PMI for July slipped from 50.3 to 48.0 as employment slowed to a seven-month low
Previous Releases and Risk Environment Influence on the Australian Dollar
July 20, 2023
Event Results / Price Action:
Australia added 32.6K jobs in June versus the consensus of a 15K gain, but it was slower than the previous 76.6K increase. The unemployment rate held steady at 3.5% instead of rising to the projected 3.6% figure.
AUD pairs were off to a rough start, as commodity currencies were bogged down by global growth concerns early in the week. Fortunately, bulls were encouraged to charge after the RBA printed relatively hawkish policy meeting minutes, which were then underscored by upbeat jobs data.
Risk Environment and Intermarket behaviors:
A combination of worsening geopolitical tensions in Ukraine and the possibility of higher global interest rates weighed on risk-taking in the early part of this trading week.
It didn’t help that China printed subpar growth figures, prompting Treasury Secretary Yellen to warn that these could have negative spillover effects on the U.S. and global economy.
However, risk appetite soon picked up when the PBoC set a much weaker USD/CNY fixing AND adjusted its financing rules so that companies could borrow more through cross-border financing.
June 15, 2022
Event Results / Price Action:
Australia added 75.9K jobs in June, surpassing expectations of a 18.6K gain and chalking up an impressive rebound over the earlier 4.0K decline. As it turned out, job vacancies were on the rise due to higher demand for skilled labor during this month.
With that, the jobless rate dipped from 3.7% to 3.6%, keeping the higher-yielding Aussie supported on stronger RBA rate hike bets.
Risk Environment and Intermarket behaviors:
The market spotlight was mostly on downbeat Chinese data and the possibility of increased stimulus efforts from the world’s second largest economy, which was probably risk-taking was in play during the week.
In addition, the possibility of the FOMC pausing from its tightening cycle also lifted investors’ appetite for risk. However, hints about resuming rate hikes based on the Fed dot plot projections triggered a bit of a safe-haven dollar rally midweek.
Price action probabilities:
Risk sentiment probabilities:
Investors seem spooked by news that big Chinese firms might be defaulting on their debt payments, triggering a round of risk-off flows early in the week.
Economic data from the country, namely the industrial production and retail sales figures, also came in weaker-than-expected and weighed on higher-yielding currencies on Tuesday.
A handful of top-tier catalysts, particularly the latest RBNZ interest rate decision and the FOMC meeting minutes, are still lined up ahead of Australia’s jobs release so these may still impact overall market sentiment in the next few days if we see a major deviation from expectations.
At the moment, the strong rebound in U.S. retail sales seems to have traders feeling less risk averse, but and a relatively hawkish FOMC rhetoric might keep investors on edge about potentially higher interest rates and their impact on global growth.
Australia Dollar scenarios:
Potential Base Scenario:
Based on the last couple of jobs releases, the Australian dollar tends to have a pronounced reaction to the headline figures in the first hour after the numbers are printed.
Still, the commodity currency has a good chance of extending the move if risk sentiment leans the same way. That is, a strong jobs release while risk-on flows are present could spur a lasting intraweek rally for the Aussie. On the flip side, a downbeat figure while risk-off vibes are in play might mean a prolonged downtrend for the currency.
Leading indicators from Australia are pointing to a neutral to net negative read for July, and it’s also worth noting that traders are looking risk averse so far this week.
If the data comes in below expectations and/or previous reads (and broad risk sentiment is negative), short AUD against safe-havens or lower-yielders like USD, JPY, and CHF should be further investigated for short-term opportunities.
Potential Alternative Scenario:
If Australia’s headline jobs figures surprise to the upside, the Aussie might have room to recoup its losses from risk-off trades earlier this week.
Strong numbers might even be enough to revive RBA tightening bets, which could then give AUD a chance to recover strongly against currencies with less hawkish central banks, like EUR and NZD.
Of course it’s still worth paying close attention to how the RBNZ decision turns out, as the central bank may shift its policy bias once more, influence NZD price action strongly, which could have spill over effects on the Aussie short-term due to their close trading relationship.
