- Australia’s unemployment rate is forecast to remain stable at 4.2% in September.
- Job change expected to be 25,000, focus will be on the details.
- AUD/USD is technically bearish, so any data-inspired rally could attract sellers.
The Australian Bureau of Statistics (ABS) will release the monthly employment report at 00:30 GMT on Thursday. The country is expected to have added 25,000 new jobs in September, while the unemployment rate is expected to remain stable at 4.2%. The Australian Dollar (AUD) has weakened against the US Dollar (USD) ahead of the event, with the AUD/USD pair trading below the 0.6700 level.
The ABS reports on job change by separating full-time and part-time positions. By their own definitions, full-time jobs involve working 38 hours per week or more and generally include fringe benefits, but primarily represent consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. This is why full-time jobs carry more weight than part-time jobs in setting the direction of the AUD.
In August, the monthly employment report showed that Australia managed to create 50,600 part-time jobs while losing 3,100 full-time jobs, resulting in a net employment change of 47,500. Meanwhile, the unemployment rate remained at 4.2%.
Australia’s unemployment rate expected to remain stable in September
As mentioned above, financial markets anticipate the unemployment rate to remain at 4.2%. If that’s the case, it will be the third consecutive reading at that level. Meanwhile, job creation is expected to have grown at a solid pace.
However, market participants will be more attentive to the details. August’s strong headline figure showed that most jobs created were part-time, while the country lost full-time positions. That’s usually bad news for the economy, regardless of the total. Still, it could be seen as good news in terms of monetary policy updates.
The creation of part-time positions, generally understood to have lower wages and fewer benefits than their counterparts, is often seen as a weakness in the labor market.
The Reserve Bank of Australia (RBA) is in no rush to cut the interest rate. The official cash rate (OCR) has remained stable at 4.35% for almost a year as the labor market has remained tight. In fact, it helped reduce headline inflation towards the RBA’s target of between 2% and 3%, with core inflation still high. In addition to reducing inflation, the RBA requires a more flexible labor sector to relax monetary policy.
With that in mind, the sharp rise in part-time jobs in August raised a bit of hope among those hoping the RBA will soon start reducing the OCR. But one swallow does not make a summer. An isolated macroeconomic report pointing in the “right direction” is not enough. However, if September’s employment numbers point in the same direction, there is a good chance that market participants will begin to factor in an interest rate cut. Three reports in a row will be heaven for moderates.
Meanwhile, RBA Governor Michele Bullock repeated after the September meeting that core inflation remains too high and the time has not yet come to cut interest rates. At the moment, market participants are betting that the central bank will deliver a rate cut in February 2025.
When will the Australian jobs report be released and how could it affect AUD/USD?
The ABS will publish the September employment report early on Thursday. As mentioned above, Australia is expected to have added 25,000 new jobs in the month, while the unemployment rate is forecast to remain at 4.2%. Finally, the participation rate is expected to remain at 67.1%.
Generally speaking, a strong report will boost the AUD, even if the biggest increase comes from part-time jobs. Any weak underlying subcomponents will likely fuel rate cut hopes, but not enough to trigger an AUD sell-off. The opposite case is also valid, with weak figures putting pressure on the Australian dollar.
Ahead of the announcement, the AUD/USD pair is trading a few pips below the 0.6700 level and is technically bearish.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair is trading below the 61.8% Fibonacci retracement of the 0.6621-0.6941 rally at 0.6743, which means there is a good chance that the pair will soon test the bottom of the range The bearish case is also being supported by technical indicators, as the Momentum and the Relative Strength Index (RSI) are heading firmly south well below their midlines on the daily chart, reflecting interest. of persistent selling. At the same time, the pair is currently struggling with a directionless 100-day SMA while the 20-day SMA gains bearish traction more than 100 pips above the current level.”
Bednarik adds: “AUD/USD may rise towards the Fibonacci resistance level mentioned above on an upbeat report, but given the dominant trend, sellers may seize the opportunity once the dust settles. Short-term support comes at 0.6670 en route to the 0.6620 price zone. A break below the latter should favor a short-term extension towards a strong static support area around the 0.6570 level.”
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and, therefore, a key factor in the valuation of currencies. A high level of employment, or a low level of unemployment, has positive implications for consumer spending and therefore economic growth, boosting the value of the local currency. On the other hand, a very tight labor market – a situation in which there is a shortage of workers to fill vacant positions – can also have implications on inflation levels and, therefore, on monetary policy, since a supply of labor Low labor and high demand lead to higher wages.
The pace at which wages grow in an economy is key for policymakers. High wage growth means that households have more money to spend, which often translates into higher prices for consumer goods. Unlike other more volatile sources of inflation, such as energy prices, wage growth is considered a key component of underlying and persistent inflation, as wage increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding their monetary policy.
The weight each central bank assigns to labor market conditions depends on its objectives. Some central banks have mandates explicitly related to the labor market beyond controlling inflation levels. The United States Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the only mandate of the European Central Bank (ECB) is to keep inflation under control. Even so, and despite the mandates they have, labor market conditions are an important factor for authorities given their importance as an indicator of the health of the economy and their direct relationship with inflation.
The RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages Australia’s monetary policy. Decisions are made by a Council of Governors in 11 meetings a year and in any ad hoc emergency meetings that are necessary. The RBA’s main mandate is to maintain price stability, which means an inflation rate of 2%-3%, but also “…contribute to currency stability, full employment and economic prosperity and well-being of the Australian people. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening monetary policy.
Although inflation has traditionally always been considered a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross-border capital controls. Moderately high inflation now tends to lead central banks to raise interest rates, which in turn has the effect of attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Australia is the Australian Dollar.
Macroeconomic data gauges the health of an economy and can impact the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contracting economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the AUD. A strong economy may encourage the Reserve Bank of Australia to raise interest rates, also supporting the AUD.
Quantitative Easing (QE) is a tool used in extreme situations in which 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) in order to purchase assets – typically government or corporate bonds – from financial institutions, providing them with much-needed liquidity. . QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is carried out after QE, when the economic recovery is underway and inflation begins to rise. While in QE the Reserve Bank of Australia (RBA) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets and stops reinvesting the maturing principal of the bonds. bonds you already own. It would be positive (or bullish) for the Australian Dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
