Aussie Strengthens On Strong Job Data

Aussie Strengthens On Strong Job Data
August 16, 2019

 

The Aussie gained against the G10 currencies yesterday following the release of strong employment data for July, decreasing the chances of a rate cut by the RBA (Reserve Bank of Australia) in the September policy meeting. The postponement of China import tariff hikes to December by Trump also increased risk appetite leading to the appreciation of the Australian dollar against the greenback. From a low of 0.6747, the AUD/USD pair rose to a high of 0.6780 in the past 24 hours.

According to the Australian Bureau of Statistics, the economy created 41,100 new jobs in July, versus economists’ expectation of 14,200. Notably, in June, the economy lost 2,300 jobs. The participation rate increased 0.1% to 66.1%, keeping the unemployment rate unchanged at 5.2%.

A majority of the new jobs created in July were in the full-time category, with only 6,700 of the posts in the part-time category. The underemployment rate rose 0.2% to 8.4% in seasonally adjusted terms, while the under-utilization rate increased by a similar level to 13.6%.

Justin Smirt, an economist at Westpact, believes that the unemployment rate has little chance of dropping below 5%. In fact, Westpact is anticipating a rise in the unemployment rate. Smirt explained why he expects the unemployment rate to increase from the current level: “A robust update but participation hit a new record high at the same time. So while the employment growth continues to outperform expectations the unemployment rate is very sticky around 5.2%.  As such, it is hard to see unemployment getting below 5% any time soon, let alone getting down the RBA’s natural rate of 4.5%.”

The Reserve Bank of Australia has categorically stated in May that interest rate moves will be based on changes in the labor market. Furthermore, the RBA indicated that the unemployment rate should reach 4.5% to boost inflation. However, since May, the unemployment rate has increased from 4.9%, forcing the RBA to slash the benchmark rate twice to take it down to 1% in July.

Even though July’s job data didn’t bring down the jobless rate, financial markets have responded positively to the data as the RBA is now anticipated to leave the interest rates unchanged in the September policy meeting.

After hitting a high of $123 per ton, iron ore price plunged to $93 earlier this week. However, Goldman Sachs, citing supply squeeze, has forecast the raw material for manufacturing steel to rebound to $115 per ton in the next three months. Iron ore is the largest export revenue earner of Australia.

The strong job data and optimistic iron ore price report from Goldman Sachs is anticipated to keep the Aussie bullish in the short-term.

Technically, the AUD/USD pair has found support at 0.6748. The next resistance is only anticipated near 0.6820. The currency pair is also trading above its 50-day moving average. Furthermore, the stochastic indicator is rising. As a result, we can expect the uptrend to continue in the days ahead.

AUD - technical analysis - 16th Aug 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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