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Australian Dollar Dips Lower Despite Better-Than-Expected Employment Data

Australian Dollar Dips Lower Despite Better-Than-Expected Employment Data

Daniel Moss, Analyst
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AUD/USD, RBA, Stage-Four Restrictions, Covid-19, Australian Unemployment Rate – Talking Points:

  • The Australian Dollar initially nudged higher after the unemployment rate for July printed at 7.5%, lower than the expected 7.8%.
  • Local cases of Covid-19 may continue to dictate the outlook for AUD.
  • Commodity prices appear to be underpinning the trade-sensitive currency.

The Australian Dollar rose against its major counterparts after the unemployment rate nudged 0.1% higher, beating expectations of a 0.4% increase. This is as the local economy added 114,700 jobs in July and the participation rate jumped to 64.7%.

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The surprising increase in employment suggests that the fallout from the re-imposition of stage-three lockdown restrictions in Victoria may not have been as adverse as first thought.

Furthermore, with the Reserve Bank of Australia predicting a 10% rate of unemployment by the end of the year, the better-than-expected data release may encourage the central bank to retain its wait-and-see approach. That might offer support to the Australian Dollar.

However, it must be noted that the impact of stage-four restrictions in Melbourne – the capital of Victoria – will not be seen until next month’s jobs data. With that in mind, the Australian Dollar’s outlook may hinge on local Covid-19 developments in the near-term.

AUD/USD 5-minute chart created using TradingView

Covid-19 Cases in Victoria Turning the Corner

Recent Covid-19 metrics out of Victoria suggests that Australia’s second-most populous state may be turning the corner in its fight against the highly infectious virus. The 7-day average of daily new cases has fallen below 400 for the first time in over two weeks.

More importantly, the virus’ growth rate has dropped below 1.0, which means that the number of coronavirus cases may continue to decline. One person infected with the disease is expected to infect, on average, less than one other individual.

Given the promising developments over the last week, Victorian Premier Daniel Andrews remains “convinced and very confident [that] we will continue to see data that forms a trend and we’ll continue to see numbers coming down”.

However, Andrews is unsure “exactly how long this takes and what the lowest number is we can get to, only time will tell”.

To that end, a continuation of these promising trends may serve to underpin regional risk assets. This may fuel an extension of the Australian Dollar’s surge against its US counterpart.

Source – Covid19Data

Commodity Prices Underpinning AUD

Strengthening commodity prices may continue to underpin the trade-sensitive Australian Dollar, as the price of iron ore surges to fresh yearly highs.

Considering ‘ores slag and ash’ account for almost 30% of Australian exports, it comes as little surprise that AUD has benefited from their substantial appreciation.

Moreover, this trend appears likely to continue as global manufacturing PMI data reflects a rebound in several developed economies.

To that end, AUD could extend its trek higher against its major counterparts, should global commodity prices continue to appreciate in the near-term.

Data Source - Bloomberg

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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