Coming up in the Asian session, we could have some volatility in AUD pairs with the simultaneous release of several key labor statistics from Australia.
After a couple of speeches by members of the RBA, we get our big data release of the week. And, given the amount of moving parts here, we might want to take a closer look to see how the currency will potentially react.
Schedule and Expectations
All the data points come out at the same time on Thursday at 01:30 CET (which would be Wednesday at 20:30 EST). The market will mostly be focusing on the Employment Change number.
Expectations are for the economy to have slowed the number of jobs created at 32.9K compared to the 39.1K registered last month. This would keep the employment rate flat at 5.0% according to the latest survey of economists. It would also account for a slight drop in the participation rate to 65.6% from 65.7% prior.
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Coming out at the same time, we have the release of the RBA Bulletin. This is a summary of the central bank’s prospects. It’s a pretty big document and takes some time to process, but traders will be looking for any substantial changes over the previous version published three months ago.
There aren’t any expectations for this, because it’s hard to read RBA employee’s minds. However, analysts are going to be looking for commentary on the short-term expectations given the ongoing housing issue, and trade situation.
The Latest Trends
The unemployment rate and job adds are a key focus right now. This is because they are in that situation where they are potentially positive and negative at the same time. As we discussed previously regarding how structural unemployment affects a currency, Australia’s unemployment rate is in the middle of where most economists see the structural rate at. And with increasing job creation, there might not be enough unemployed people to take on positions. This would lead to increased labor cost inflation and eventually inflation for the whole economy.
What analysts are looking at is any incipient signs of labor force tightness. This would be an indication of increased expectations for future inflation, with the corresponding impact on the currency. With a projected drop in the participation rate, that doesn’t seem to be as pressing a concern.
On the other hand, inflation rates have been hovering around the RBA’s target. And the consensus is for the next action to be a cut in rates. If there were a problem with labor tightness and potential inflationary implications, a rate cut would be the opposite of helpful.
The current economic situation is increasingly putting the RBA in something of an awkward position. There’s sluggish growth, higher occupation, and inflation is in the target range. Therefore, any action the bank takes would likely push the currency away from stability, and the objective of the bank.
In terms of the jobs numbers, last month came in line with the pattern of robust job creation. This is despite the fact that the unemployment rate has sort of stuck at seven-year lows. Economic issues are not so much related to the ability to create jobs. They are more to do with specific, however short-term impacts, chief among them being the ongoing trade dispute between the US and China, which is affecting Australia’s largest customer.