Australian unemployment rate seen steady in July<\/p>\n
The soft anticipated figures could have a near-term negative impact on the Australian Dollar (AUD), although market attention remains elsewhere: the Middle East.<\/p>\n
While Australian employment data can shape future Reserve Bank of Australia (RBA) monetary policy decisions, policymakers are clearly focusing on inflation. At the August meeting, the Board decided to keep the Official Cash Rate (OCR) unchanged at 4.35%, as expected.<\/p>\n
\u201cWhile the impact of the Middle East conflict on inflation has so far been less than expected, headline inflation is still too high. Trimmed mean inflation also remains elevated and is little changed from the March quarter. Oil and most related commodity prices remain higher than they were prior to the Middle East conflict,\u201d the RBA\u2019s August statement reads.<\/p>\n
Inflation risks are tilted to the upside, while \u201clabour market conditions have eased by a little more than expected in recent months. Labour market leading indicators point to only limited easing in the near term,\u201d the statement adds, suggesting that the anticipated soft outcome will be considered encouraging by the RBA rather than a new point of concern.<\/p>\n
Regarding the United States (US)-Iran war, there\u2019s not much new going on, and that\u2019s actually concerning. Both sides refrain from launching fresh attacks on the other, yet negotiations to end the conflict seem utopian at this point. Each side’s demands are a line the other side will not cross. As a result, Oil prices are slowly but steadily rising, which ultimately exacerbates and confirms inflation-related concerns.<\/p>\n
Back to the Australian employment data release, and as previously mentioned, the anticipated figures are expected to have a negative, yet temporary impact. A much better-than-anticipated outcome could spur some near-term AUD demand, yet whether the currency could sustain such gains will depend on risk-related sentiment and US Dollar (USD) weakness or strength.<\/p>\n
When will the Australian employment report be released and how could it affect AUD\/USD?<\/p>\n
The ABS July employment report will be released early on Thursday. As previously noted, the Australian economy is expected to have added 15K new jobs in the month, while the Unemployment Rate is forecast at 4.4%. Market participants will also be attentive to the breakdown of full-time and part-time positions.<\/p>\n
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Valeria Bednarik, Chief Analyst at FXStreet<\/a>, notes: \u201cThe AUD\/USD pair trades around the 0.7100 mark amid broad USD weakness, not far below the August peak at 0.7129. Technically, the pair is bullish, with the daily chart showing buyers aligned around the 100-day Simple Moving Average (SMA) at around 0.7060. The 20-day SMA meanwhile advances below the longer one, signaling increased buying interest. Finally, technical indicators in the same chart remain within positive levels, although lacking clear directional strength.\u201d<\/p>\n Bednarik adds: \u201c As long as the pair holds above the mentioned 0.7060 region, the bullish stance will remain in place regardless of intraday movements. Below the level, however, the retracement can extend towards the 0.7030 price zone before buying interest shows signs. Immediate near-term resistance is located at 0.7030, while additional gains could see AUD\/USD<\/a> reaching 0.7070 before some selling interest appears.\u201d<\/p>\n RBA FAQs<\/p>\n The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA\u2019s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also \u201c..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.\u201d Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.<\/p>\n While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.<\/p>\n Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.<\/p>\n Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets \u2013 usually government or corporate bonds \u2013 from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD. <\/p>\n Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar. <\/p>\n Economic Indicator<\/p>\n Employment Change s.a.<\/p>\n