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Australian Dollar Leaps On Strong Job Creation, Rate Outlook Still Weak

Australian Dollar Leaps On Strong Job Creation, Rate Outlook Still Weak

David Cottle, Analyst
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Australian Dollar, Employment Data, Talking Points:

  • Australian job creation rose well above forecasts in October
  • Full time jobs rose by an impressive 42,000
  • The Australian Dollar rose, but the longer-term inflation and interest rate prospects are much less clear

Fourth-quarter technical and fundamental forecasts from the DailyFX analysts are out now.

The Australian Dollar surged Thursday on news of yet-more strong job creation in its home country.

A consensus-smashing 32,800 jobs were created in October. That was well above both the 20,000 gain expected and September’s rise of 5,600. The unemployment rate fell back to 5%, which had been August’s figure and the lowest rate since early 2012. Last month had seen it inch up to 5.1%.

Within the figures was a stunning rise of 43,200 in full-time positions, while part-time roles slipped by 9,500. October marked the 25th straight increase of more than 20,000 full-time jobs. Given such strong numbers it’s hardly surprising that AUD/USD should have gained on this release as it duly did.

AUD/USD 5-Min Chart

However, perky employment numbers are nothing new in Australia and have so far completely failed to translate into the sort of inflation figures that might make for higher interest rates. Consumer Price rises languish at 1.9%, still below the Reserve Bank of Australia’s 2-3% target band.

The key Official Cash Rate remains at its record low of 1.50%. That has endured since August 2016 and, according to futures market pricing, is set to remain unchanged all through 2019.

If so, the contrast between RBA policy and that of a US Federal Reserve still committed to raising rates will make sustainable AUD/USD gains very tough. On its daily chart the Aussie has come under some renewed pressure this week against its US cousin, mostly thanks to trade-related risk-appetite swings.

The Australian Dollar usually acts as a ‘risk currency’ – in vogue when investors are more relaxed about growth prospects. Such currencies have tended to lose out in recent sessions to perceived havens such as the US Dollar and Japanese Yen.

Still, AUD/USD has risen in the past two weeks above 2018’s dominant downtrend line, although its time there will remain very dependent on that hair-trigger risk appetite.

AUD/USD Daily Chart

Major local lender Westpac earlier this month suggested that the pair could be headed down below 0.7000 next year- as the Australian labor market finally starts to turn.

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--- Written by David Cottle, DailyFX Research

Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.