Australian employment figures for August are due on Thursday at 0130 GMT, with the economy expected to be a net creator of jobs following July’s negative employment growth. The Aussie is on the receiving end of considerable pressure stemming from growing concerns for a full-blown trade war between the US and China, as well as on the back of domestic drivers. Strong data later in the week may provide some short-term relief to the battered currency, but unless the trade narrative turns rosier they are unlikely to offer a lasting boost to the Aussie.
The Australian economy is anticipated to have created 15.0k jobs in August after losing 3.9k in the previously reported month. Still, July’s headline loss of jobs may be deceiving, given that the data were accompanied by a jump in full-time positions which are seen as having the greatest potential to revive stubbornly low wage growth; in other words, July’s loss was fueled by a decline in part-time positions. Moreover, the unemployment rate matched a low last experienced in November 2012 in the previously tracked month and is forecast to remain at the same 5.3% level in August. This is positive, given that the participation rate is predicted to tick higher to 65.6%, from 65.5% in July.
Robust prints later on Thursday may provide a lift to the Aussie which is trading around two-and-a-half year low levels versus the greenback, though much like last week’s Q2 GDP beat, a resulting rise in aussie/dollar may well be short-lived. Moreover, the data are unlikely to alter expectations pertaining to the Reserve Bank of Australia’s rate outlook much; market participants effectively see zero odds for a move by the Bank over the remainder of 2018, according to Australian overnight index swaps.
What is perhaps needed for a sustained rally in the Aussie is a clear sign of a pick up in wages and/or an easing of trade tensions between the US and China. The latter holds true due to Australia’s export- and China-dependency; indicatively, readings out of Australia last week showed the nation enjoying a record trade surplus with China year-to-date. Thus, a brighter outlook on the Chinese economy, as well as on global growth & trade, are seen as supportive for as stronger Australian currency. So far developments are not encouraging though, with a fresh round of US tariffs on $200 billion worth of Chinese imports possibly being implemented soon. In the meantime, President Trump expressed readiness on Friday to proceed with levies on virtually all Chinese imports to the US.
Upbeat numbers on employment or, more importantly, signs of abating trade tensions between the US and China are likely to propel AUDUSD higher. Resistance to a rising pair may take place around the 0.72 round figure. More bullish movement would shift the focus to the region around the current level of the 50-day moving average line at 0.7329 which was relatively congested from late June to early August, assuming that the 0.73 handle is broken first.
On the downside and in case of disappointing figures or rising trade risks, price action is likely to challenge Tuesday’s two-and-a-half-year nadir of 0.7083. A drop below would bring the 0.70 mark into scope. It is of note that a double top from September last year and January-February of the current year on the weekly chart projects towards the 0.69 handle.
Lastly, another factor weighing on the Australian currency that bears mention is the decision by a number of commercial banks within the country to raise their mortgage rates. In essence, this has similar effects to an RBA rate hike and is therefore seen as further squeezing indebted households’ ability to spend.
