October’s employment report for Australia is likely to attract investors’ attention on Thursday at 0030 GMT as the Australian dollar gained some ground in the previous couple of weeks. Stronger figures in employment may provide some further relief to the currency, while seasonally adjusted wage price index rose 2.3% year-on-year in the third quarter, above the 2.1% for the previous quarter and matching market expectations. The quarter-on-quarter rate stayed unchanged at 0.6%. Also, key indicators out of China earlier in the day was in focus for aussie traders.
The unemployment rate is forecasted to tick up to 5.1% in October from 5.0% in the preceding month, which was the lowest jobless rate since April 2012. The rise is due to an anticipated increase in the participation rate to 65.5% from 65.4%. The net change in employment is expected to show that the economy gained 20,300 jobs, more than September’s 5,600. Stronger than expected figures on Thursday may provide a boost to the aussie, which is trading well above its recent 33-month lows levels versus the greenback.
At the latest statement of the Reserve Bank of Australia (RBA) monetary policy decision, Governor Philip Lowe mentioned that the Australian economy is performing well as GDP growth is holding above 3% and kept the cash rate at 1.50%, where it’s been since August 2016. Also, consumer price inflation ticked lower to 1.9% year-on-year in the third quarter of 2018 from 2.1% previously. The latest figure was in line with market expectations, mainly due to a marked slowdown in the cost of housing.
Inflation is expected to pick up over the next couple of years, with the advance likely to be gradual. It is predicted to inch up to 2.25% in 2019 and even higher in the following year. Stronger growth and labour market conditions can be expected to generate a gradual lift in wages growth and inflation over time. The low levels of interest rates are supporting the Australian economy. Further progress in reducing unemployment and having inflation near the target is expected, although this progress is likely to be gradual.
However, despite the recent upside rally in the aussie, having a look at the outlook for the US economy and US Federal Reserve policy, it is expected to decline during the next year. The Fed is predicted to post another hike in December and three hikes in 2019.
So, from the technical point of view, aussie/dollar edged higher to six-week peak in the prior week as easing trade tensions, relief from the US midterms and an upbeat RBA lifted the currency. But the pair could be at risk of a bearish retracement if the employment report disappoints.
Currently, the pair holds above the 20- and 40-simple moving averages in the daily timeframe, which are ready to create a bullish crossover, indicating further buying interest. Upbeat numbers on employment are likely to propel the price higher towards the 0.7300 handle, which stands near the 23.6% Fibonacci retracement level of the downleg from 0.8135 to 0.7020. More bullish movement would drive the pair towards the 0.7380 resistance.
On the downside, in case of disappointing figures or rising trade risks, price action is likely to challenge again the 0.7040 support level, after dropping below 0.7160. A drop below 0.7040 could send prices until the 33-month low of 0.7020.
