Australia’s employment report for December is likely to attract attention and is scheduled for release on Thursday at 0030 GMT. The unemployment rate is forecasted to remain unchanged at 5.4% for the month of December, while the employment change is expected to show that the economy added 9000 jobs, much less from the previous month. Meanwhile, the participation rate is predicted to tick marginally lower to 65.4% in December from 65.5% before. Could a stronger than expected employment data affect the local currency?
The aussie received a boost on January 11 following the release of Australia’s retail sales for November, which were much stronger than expected and rose by 1.2% month-on-month from 0.5% in the prior month. Sales rose at the fastest rate since February of 2013, mainly nudged by household goods.
The employment report overnight could drive aussie/dollar higher if the releases beats expectations. It is worth mentioning that Australian employment exceeded all predictions in November, the jobless rate remained at its lowest since February 2013, as the economy added 61,600 jobs while the number of unemployed increased by 4,100. However, weaker releases could push the RBA to be neutral for a longer period.
Turning to monetary policy, the Reserve Bank of Australia will have its interest rate decision on February 6 and is anticipated to keep its rate at 1.5%. The Bank has gone more than seven years without raising rates, the longest span since the official cash rate was introduced in 1990. According to forecasts by one of the major banks, the RBA will raise the official rate by 25 basis points in August and again in November. The central bank will be ready to increase rates when there are reliable signs that wage growth and inflation are moving in the right direction. Consumer prices rose 1.8% through the year to the September quarter of 2017, following a 1.9% increase in the second quarter. It was the lowest inflation rate since the December 2016 quarter. Additionally, if commodity prices continue to rise and Australian data continues to show a strengthening economy, the market may start pricing in more aggressive RBA policy tightening. Thursday could be a good day to start as China growth data will be released along with the Australian employment data.
Aussie/dollar edged sharply higher during the past week and outperformed as it successfully surpassed the 0.7900 psychological level. The pair has risen around 5% since last month as the US dollar has come under broad pressure. Moreover, aussie/dollar rebounded on the significant ascending trend line, which has been holding since January 2016 and posted five bullish weeks in a row, surpassing the three-weekly simple moving averages (50, 100 and 200).
If the employment report surpasses the consensus, then the price could create a rally until the 0.8100 strong psychological level. A break above the aforementioned obstacle could open the door towards the next immediate resistance of 0.8125.
A worse-than-expected figure could create a downward pressure for the pair and would retest the 0.7730 support level in the daily timeframe.
