The recent Aussie Labor Report has revealed that the unemployment rate in Australia is currently at its highest level since November 2021. This rise in unemployment has been attributed to an increase in labor supply rather than job losses. Despite the increase in unemployment, experts believe that this situation may not rush the Reserve Bank of Australia (RBA) into implementing rate cuts. However, it does indicate a cooling off in the labor market, with predictions of the first rate cut being in February 2025.
Following the Labor Report, investors are advised to pay close attention to the speeches of FOMC voting members such as Christopher Waller and Raphael Bostic. Their views on the labor market and the Federal Reserve’s rate path are crucial, especially in light of speculations about a potential 50-basis point rate cut in September. A support for such a rate cut could result in an interest rate differential between Australia and the US, potentially driving the AUD/USD exchange rate above $0.70.
Chief Global Economist Parker Ross has expressed concerns about the US labor market and the Federal Reserve’s rate path. He highlighted that historically, the Fed has not initiated mid-cycle adjustments when the unemployment rate was already increasing year-over-year. This skepticism raises questions about the effectiveness of rate cuts in stimulating economic growth and employment. The market is currently pricing in multiple rate cuts, indicating uncertainty about the Fed’s ability to navigate the economic challenges.
The near-term trends of the AUD/USD exchange rate will be influenced by various factors, including Australian inflation figures, US jobless claims, and the US Personal Income and Outlays Report. Deviations from expectations in these economic indicators could lead to shifts in market sentiment towards either currency. Investors are advised to monitor real-time data, news updates, and expert commentary to make informed trading decisions and manage their exposure to forex markets effectively.
From a technical perspective, the AUD/USD pair has been trading comfortably above both the 50-day and 200-day Exponential Moving Averages (EMAs), indicating a bullish price trend. A breakout above the $0.67967 resistance level could potentially trigger further upside momentum towards the $0.68500 level and beyond. On the other hand, a breakdown below the $0.67500 support level might lead to a retracement towards the $0.67003 level, with potential buying pressure expected at the top trend line.
The recent Aussie Labor Report sheds light on the challenges facing the Australian labor market and the potential implications for monetary policy. Investors should remain vigilant in monitoring economic data and central bank communications to navigate the uncertainties in the currency markets effectively.