Australian employment sparkles
It has been a week of the good and the bad/ugly from Australian releases. The employment report for June, released earlier today, improved from May and easily beat expectations. The economy created 88.4 thousand jobs, up from 60.6 thousand in May and well above the 30.0 thousand estimate. The unemployment rate dropped to 3.5%, down sharply from 3.9% in May (3.8% exp.). This is good news for the RBA, which is relying on a robust labour market to bear the weight of an aggressive rate policy.
The RBA has raised the cash rate to 1.35%, with more hikes on the way. The relatively low cash rate hasn’t had much effect on soaring inflation, which surged to 5.1% in the first quarter. Australia releases Q2 inflation on July 27th, the same day as the Federal Reserve policy meeting. The RBA has said that inflation could top 7%, which would exacerbate the current cost of living crisis.
Higher inflation has taken a bite out of business and consumer confidence, which headed southward earlier in the week. Westpac Consumer Confidence index for July came in at -3.0%, its ninth decline in 10 months. As well, NAB Business Confidence for June slowed to 1, down from 6 in May. Consumers and companies don’t have much confidence in the economic outlook, and that can translate into decreased spending in a time of uncertainty, which would be bad news for the economy.
Inflation releases tend to grab the headlines, especially with inflation going up and up. However, the RBA is no less concerned with inflation expectations, as inflation will be even harder to curb if consumers and businesses expect inflation to continue to rise and rush to make purchases, thus exacerbating the pressure on prices. Earlier in the week, Melbourne Institute Inflation Expectations remained high at 6.3%, although this was an improvement from the previous reading of 6.7%.
AUD/USD Technical
- There is resistance at 0.6782 and 0.6839
- 0.6706 is a weak support line, followed by 0.6649
