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AUD/USD, ASX 200 Plunge as Jobless Rate Surges to 22-Year High

AUD/USD, ASX 200 Plunge as Jobless Rate Surges to 22-Year High

Daniel Moss, Analyst

AUD/USD, Stage Four Restrictions, Covid-19, Australian Employment Data – Talking Points:

  • The Australian Dollar tumbled despite a record number of jobs added in June as the unemployment rate jumped to 7.4%, exceeding expectations of a 7.3% print.
  • Regional sentiment has notably soured as coronavirus cases in Victoria, Australia’s second most populous state, continue to climb.
  • AUD/USD, ASX 200 may continue to slide ahead of the Federal Government’s July 23 economic address.

AUD/USD, ASX 200 Plunges on Local Employment Data

AUD/USD, ASX 200 Plunge as Jobless Rate Surges to 22-Year High

AUD/USD, ASX 200 comparison chart created using TradingView

The Australian Dollar plunged as the unemployment rate jumped to 7.4% - the highest levels since 1998 - despite the economy adding 210,800 jobs in June.

Although local employers hired at a record clip in June, full-time roles notably decreased (-38.1K) at the hands of part-time jobs (+249K), suggesting the uncertain economic outlook is forcing businesses to remain relatively fluid as a ‘second wave’ of coronavirus infections threaten to halt reopening efforts.

Positive Chinese economic data did little to buoy the trade-sensitive Australian Dollar, despite GDP expanding a staggering 11.5% in the second quarter of 2020, as regional investors continue to monitor local health developments ahead of the Federal Government’s ‘economic statement’ on July 23.

Australian Unemployment Rate

AUD/USD, ASX 200 Plunge as Jobless Rate Surges to 22-Year High

Covid-19 Weighing on Consumer Confidence

Victorian State Premier Daniel Andrews’ comments flagging the potential imposition of harsher “stage four” restrictions have notably weighed on consumer and business confidence with the Westpac Consumer Sentiment Index falling 6.1% in July, after climbing 6.3% last month.

As Victoria, Australia’s second most populous state, records eleven consecutive days of triple digit increases in Covid-19 cases, concern is brewing that 6 weeks of “stage 3” restrictions may not be enough to successfully supress the virus.

WestPac Consumer Sentiment Index

AUD/USD, ASX 200 Plunge as Jobless Rate Surges to 22-Year High

Source – Trading Economics

Chief Health Officer Brett Sutton partially tamed fears stressing to do “the minimum required because we know how much of an imposition it is on businesses and people’s lives”. However, Sutton conceded that “if it’s required to reduce transmission” then stage four restrictions have “to be in play”.

With current restrictions estimated to cost the state government $1 billion a week, the imposition of harsher measures in Victoria - Australia’s second largest contributor to GDP - would severely hamper the local economic recovery and may pressure the Federal Government to introduce a more substantial “second phase of income support [that] takes into account the Victorian circumstances”

AUD/USD, ASX 200 Plunge as Jobless Rate Surges to 22-Year High

To that end, Treasurer Josh Frydenberg’s upcoming economic address will be pivotal in determining the path forward for regional risk assets as he is scheduled to outline a “second phase of income support governed by the same principles that have defined our economic measures to date”.

Failure to adequately quench the economy’s need for further stimulus may crystalize the reality that Australia is heading for a fiscal cliff edge at the end of September, potentially fueling a heavy discounting of the ASX 200 and trade-sensitive AUD.

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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