The Australian dollar is showing little movement today after the solid Australian employment report.
Australian employment rebounds
The Australian labour market remains resilient, as indicated by a solid August employment report. The increase in employment of 33.5 thousand was very close to the consensus of 35 thousand, with the gain of 58.8 thousand full-time jobs especially impressive. The release was within expectations and the Australian dollar’s response has been muted. The unemployment rate ticked higher to 3.5%, up from 3.4%.
The employment data likely will not change things for the RBA, which meets on October 6th. The RBA has delivered 50bp rate hikes four straight times, but may be looking to ease its tightening and guide the economy to a soft landing. If the RBA needs an excuse to hike by 25bp, it could hang its hat on the slight rise in the unemployment rate.
Australia’s Inflation Expectations slowed to 5.4% in August, marking a third consecutive decline. This is a dose of good news for the RBA, which wants to ensure that inflation expectations do not become unanchored in an environment of red-hot inflation.
In the US, the August inflation report resulted in plenty of volatility, as stock markets fell sharply before recovering. The US dollar rose sharply after inflation came in at 8.3%, higher than the forecast of 8.1%. The markets have been forced to recalibrate after assuming that inflation had peaked and the Fed would make a U-turn on policy. The Fed has been consistent in its hawkish message, and it seems that the markets are finally listening. The FOMC is expected to raise rates by 75bp, with market pricing showing plenty of fluctuation. Currently, there is a 74% likelihood of a 75bp increase, with a 26% of a massive 100pt hike. Gone is the anticipation of a “modest” 50bp rise, as the Fed is expected to continue to stay aggressive until inflation shows unmistakable signs that it has peaked and is moving lower. The Fed is saying that inflation will be brought down to the 2% target in 2023, but it looks like the road to low inflation will have bumps along the way, as the battle with inflation has been difficult and that is likely to continue to be the case.
- AUD/USD has weak support at 0.6737, followed by support at 0.6629
- There is resistance at 0.6807 and 0.6915
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