Australia is scheduled to publish the October monthly employment report on Thursday at 0:30 GMT, with market participants anticipating a modest improvement in labor market conditions. Still, the expected outcome indicates persistent weakness in the sector.
The Australian Bureau of Statistics (ABS) is expected to announce that the country added 20,000 new jobs in the month, while the Unemployment Rate is forecast at 4.4%, easing from the 4.5% posted in September. The Participation Rate was last seen at 67%.
The ABS reports both full-time and part-time positions through the monthly Employment Change. Generally speaking, full-time jobs entail working 38 hours or more per week, usually include additional benefits, and typically provide a consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. That’s why the economy prefers full-time jobs. In September, Australia gained a modest 8,700 full-time positions and created 6,300 part-time ones.
Australian unemployment rate expected to tick lower in October
Ahead of the release, market players’ attention lies elsewhere: The United States (US) government ran out of funding on October 1 and has remained closed ever since. That means multiple federal workers have been furloughed, various benefits have been suspended, and the release of official data has been halted. The good news is that the stalemate is about to end, as the US Senate agreed on a funding bill early in the week and passed it to the Republican-controlled House of Representatives. The US government reopening is fueling optimism, keeping AUD/USD afloat around 0.6540 ahead of employment data.
The Reserve Bank of Australia (RBA) met in early November and decided to keep the Official Cash Rate (OCR) steady at 3.6%. The decision was prompted by higher-than-expected inflation over the year to September. “Trimmed mean inflation was 1.0 per cent in the September quarter and 3.0 per cent over the year, up from 2.7 per cent over the year in the June quarter. This was materially higher than expected at the time of the August Statement on Monetary Policy. Headline inflation rose sharply to 3.2 per cent over the year in the September quarter, a large part of which was expected given the cessation of electricity rebates in a number of states,” the RBA statement reads.
The document also showed that labour market conditions eased by a “little more than expected,” although a range of indicators continue to suggest that some tightness remains in the labour market. Bottom line, Australian policymakers are far more concerned about inflation than about employment.
And it is not just the RBA. Several major Australian banks have begun raising their fixed rates, according to a report from realestate.com.au, which points to falling expectations for additional interest rate cuts in the near future. There is still a chance of a rate cut in February, but the odds for a rate hike have increased.
With that in mind, the upcoming employment report could temporarily impact the AUD, but it would hardly have a substantial effect on future RBA monetary policy decisions. As usual, a weaker-than-anticipated report should be negative for the AUD, while stronger-than-anticipated figures should boost demand for the Aussie.
When will the Australian employment report be released and how could it affect AUD/USD?
The ABS October report will be released early on Thursday. As previously noted, the Australian economy is expected to have added 20,000 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 on the expected 20,000 headline.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair is technically neutral ahead of the announcement, according to technical readings in the daily chart. Still, the pair pressures the upper end of its recent range, which somehow skews the risk to the upside.”
Bednarik adds: “US government reopening news is likely to overshadow data, if the shutdown ends before the Australian figures come out. If that’s not the case, the AUD/USD pair could jump initially towards 0.6590 and later extend the advance towards the 0.6630 price zone. Disappointing figures could see the pair retracing initially towards the 0.650 mark, while below the latter, there is scope for a slide towards the 0.6440 price zone.”
Economic Indicator
Employment Change s.a.
The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. The statistic is adjusted to remove the influence of seasonal trends. Generally speaking, a rise in Employment Change has positive implications for consumer spending, stimulates economic growth, and is bullish for the Australian Dollar (AUD). A low reading, on the other hand, is seen as bearish.
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RBA FAQs
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’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” 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.
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.
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.
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 – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
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.