Aussie may shrug off employment report as all eyes on July RBA – Forex News Preview
Posted on June 15, 2021 at 3:09 pm GMTRaffi Boyadjian, XM Investment Research Desk
Employment numbers for May are due in Australia on Thursday (01:30 GMT) when a jobs gain is likely after the unexpected decline in April. However, with the labour market already fully recovered from the pandemic, investors are more preoccupied with RBA policy right now as the central bank is due to decide in July whether to extend its quantitative easing programme. The July meeting could be a turning point for the Australian dollar, which has been rangebound since March. But until then, it’s hard to see the aussie breaking out of this range.
A Covid-19 success story
There are only a handful of countries that can claim to be a Covid-19 success story. Australia is one of them. Although the virus threat is far from eliminated as the state of Victoria is still battling small outbreaks, Australia’s economy has been spared the endless business shutdowns that many other nations have had to endure. It’s no wonder, therefore, that gross domestic product as well as total employment have already recovered to pre-pandemic levels.
Yet, the Reserve Bank of Australia is in no hurry to end its emergency stimulus as it wants to see a sustained pickup in both wage growth and inflation before pulling the plug on bond purchases. Wages rose by just 1.5% y/y in the first quarter while the annual rate of CPI was 1.1%, so there’s still a long way to go. However, the speed of the recovery does at least argue for some scaling back of QE. Policymakers have strongly hinted that a decision on whether to extend bond purchases and by how much will be made at the July meeting as the current round of A$100 billion in QE is set to be completed in September.
Jobs rebound may be losing steam
Thursday’s jobs numbers might help the RBA make up its mind, though on the whole, the data aren’t anticipated to significantly heighten expectations in any particular direction ahead of the policy decision on July 6. In April, employment fell by 30.6k, but this was led mainly by a reduction in part-time jobs and full-time work was up. The forecasts for May are for an increase of 30k jobs, while the unemployment rate is predicted to have stayed unchanged at 5.5%.
The overall trend seems to be one of a slowing of rebound in the jobs market. That was to be expected as employment reaches pre-pandemic heights. But given that there was already some slack in the labour market even before the pandemic and wage growth has been subdued for several years now, the RBA will want to see much stronger jobs gains before it even begins to worry about severe labour shortages.
Aussie saving the fireworks…
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