Australian employment report closes RBA rate cut possibility.

The Australian employment data presented a bleak outlook, reducing the likelihood of a rate increase by the Reserve Bank of Australia (RBA) following lower-than-anticipated wage growth statistics.

Highlights

• "Australian employment closed off the possibility of additional rate hikes by the RBA."
• "The unemployment rate in Australia rose from 3.5% to 3.7% in July."
• "The difference in monetary policies is increasingly favoring the Federal Reserve and the U.S. dollar following the latest Australian labor market data."

The unemployment rate in Australia has reached 3.7%.

Following the release of the FOMC meeting minutes, the morning after was quite busy. The focus was on the Australian employment figures for July. These numbers were particularly important, especially after the less-than-expected wage growth figures. Weak employment figures could potentially put an end to any further interest rate hikes by the Reserve Bank of Australia (RBA).

In July, employment decreased by 14.6k, compared to a significant jump of 32.6k in June. Economists had previously predicted a 15.0k increase. Additionally, full employment fell by 24.2k, as opposed to the rise of 39.3k in June. The unemployment rate slightly increased from 3.5% to 3.7% in July, with economists anticipating it to reach 3.6%.

According to the Australian Bureau of Statistics (ABS), the decline in employment follows an average monthly increase of approximately 42,000 during the first half of 2023. It's worth noting that July includes school holidays, which may have influenced the month-to-month changes. Despite the increase of 36,000 in unemployment for July, the overall unemployment rate is still 172,000 lower than pre-pandemic levels.

While employment declined by 0.1%, monthly hours worked increased by 0.2%. The ABS attributes this increase in hours worked to fewer people contributing to the workforce during the school holidays. Underemployment remained the same, with the rate currently 2.4 percentage points lower than before the pandemic.

The state of Australian employment continues to be an important consideration for the RBA. As labor market conditions worsen, the pressure on wage growth and demand-driven inflation eases. Higher interest rates may result in a decrease in hiring and a decline in purchasing power, ultimately leading to decreased consumption and consumer price pressures.

Based on the latest wage growth and employment figures, it appears that the RBA's policy actions are starting to have an impact. However, both investors and the RBA will need to assess the post-school holiday numbers to get a more accurate picture of the situation.

The response of the Australian dollar to the employment data from Australia.

Ahead of the release of the employment report, the AUD/USD currency pair initially increased to a high of $0.64285 but later dropped to a low of $0.63946 after the report was published.

Subsequently, following the release of the employment data, the Australian dollar experienced a decline from $0.63971 to a post-report low of $0.63649.

As of the most recent update this morning, the Australian dollar has decreased by 0.70% and is currently valued at $0.63797 compared to the US dollar.

Consider FOMC impact on jobless claims.

This afternoon, both the Philly Fed Manufacturing Index and US jobless claims data are expected to influence market direction. If jobless claims decrease, it would challenge the notion of a weaker US labor market and potentially strengthen the belief in a more hawkish Federal Reserve (Fed) stance.

We anticipate that the jobless claims data will have a greater impact compared to the Philly Fed Manufacturing Index.

It is important to consider that the manufacturing figures are unlikely to significantly sway the Fed's decision-making. The manufacturing sector constitutes less than 30% of the overall US economy and is unlikely to have a major influence on Fed monetary policy sentiment. Conversely, a tight labor market is supportive of future Fed interest rate hikes to control demand-driven inflation.