Will Australia unemployment rate decline in October after rising the previous month? | FXStreet
Australia is scheduled to publish the October monthly employment report on Thursday at 0:30 GMT, with market participants anticipating a modest improvement in labor market conditions. Still, the expected outcome indicates persistent weakness in the sector.
The Australian Bureau of Statistics (ABS) is expected to announce that the country added 20,000 new jobs in the month, while the Unemployment Rate is forecast at 4.4%, easing from the 4.5% posted in September. The Participation Rate was last seen at 67%.
The ABS reports both full-time and part-time positions through the monthly Employment Change. Generally speaking, full-time jobs entail working 38 hours or more per week, usually include additional benefits, and typically provide a consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. That’s why the economy prefers full-time jobs. In September, Australia gained a modest 8,700 full-time positions and created 6,300 part-time ones.
Australian unemployment rate expected to tick lower in October
Ahead of the release, market players’ attention lies elsewhere: The United States (US) government ran out of funding on October 1 and has remained closed ever since. That means multiple federal workers have been furloughed, various benefits have been suspended, and the release of official data has been halted. The good news is that the stalemate is about to end, as the US Senate agreed on a funding bill early in the week and passed it to the Republican-controlled House of Representatives. The US government reopening is fueling optimism, keeping AUD/USD afloat around 0.6540 ahead of employment data.
The Reserve Bank of Australia (RBA) met in early November and decided to keep the Official Cash Rate (OCR) steady at 3.6%. The decision was prompted by higher-than-expected inflation over the year to September. “Trimmed mean inflation was 1.0 per cent in the September quarter and 3.0 per cent over the year, up from 2.7 per cent over the year in the June quarter. This was materially higher than expected at the time of the August Statement on Monetary Policy. Headline inflation rose sharply to 3.2 per cent over the year in the September quarter, a large part of which was expected given the cessation of electricity rebates in a number of states,” the RBA statement reads.
The document also showed that labour market conditions eased by a “little more than expected,” although a range of indicators continue to suggest that some tightness remains in the labour market. Bottom line, Australian policymakers are far more concerned about inflation than about employment.
And it is not just the RBA. Several major Australian banks have begun raising their fixed rates, according to a report from realestate.com.au, which points to falling expectations for additional interest rate cuts in the near future. There is still a chance of a rate cut in February, but the odds for a rate hike have increased.
With that in mind, the upcoming employment report could temporarily impact the AUD, but it would hardly have a substantial effect on future RBA monetary policy decisions. As usual, a weaker-than-anticipated report should be negative for the AUD, while stronger-than-anticipated figures should boost demand for the Aussie.
When will the Australian employment report be released and how could it affect AUD/USD?
The ABS October report will be released early on Thursday. As previously noted, the Australian economy is expected to have added 20,000 new jobs in the month, while the Unemployment Rate is forecast at 4.4%. Market participants will also be attentive to the breakdown of full-time and part-time positions on the expected 20,000 headline.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair is technically neutral ahead of the announcement, according to technical readings in the daily chart. Still, the pair pressures the upper end of its recent range, which somehow skews the risk to the upside.”
Bednarik adds: “US government reopening news is likely to overshadow data, if the shutdown ends before the Australian figures come out. If that’s not the case, the AUD/USD pair could jump initially towards 0.6590 and later extend the advance towards the 0.6630 price zone. Disappointing figures could see the pair retracing initially towards the 0.650 mark, while below the latter, there is scope for a slide towards the 0.6440 price zone.”
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Economic Indicator
Unemployment Rate s.a.
The Unemployment Rate, released by the Australian Bureau of Statistics, is the number of unemployed workers divided by the total civilian labor force, expressed as a percentage. If the rate increases, it indicates a lack of expansion within the Australian labor market and a weakness within the Australian economy. A decrease in the figure is seen as bullish for the Australian Dollar (AUD), while an increase is seen as bearish.