Australia records banner job report
The Australian dollar has extended its gains and has pushed above the 72 level. The Aussie received a boost from an excellent employment report for November. The economy created 336.1 thousand new jobs, crushing the consensus of 200 thousand and ending a nasty streak of four straight declines. This marked the highest monthly gain on record, although only 128 thousand of these jobs were full-time. The unemployment rate fell sharply to 4.6%, down from 5.2% beforehand.
The stellar numbers were a result of the lifting of the lockdowns in New South Wales and Victoria. Will this change the accommodative stance of the RBA? That is unlikely, since the employment report did not show any indication of wage growth, which is a key metric for the RBA as far as rate policy. The central bank has stated that it wants to see wage growth at around 3% before it will consider further reducing QE and doesn’t see a rate hike before 2022. The markets are more hawkish, pricing in several rate hikes next year.
There was some drama at the FOMC meeting, as the Fed took a step towards normalizing policy. As expected, the Fed announced that starting next month it would scale back bond purchases at double the pace, to USD 30 billion/month. This means that the bond purchases will end in March rather than July, putting the Fed in a position to raise rates earlier. The dot plot showed that 18 FOMC members are projecting at least one rate hike in 2022. This is a major shift from the September meeting, when members were evenly split. As well, 12 of the 18 members expect three rate hikes next year.
The rate statement was significant in that policy makers explained that the sharp increase in the taper was due to inflation developments and a stronger labor market. This is a clear signal that the Fed has taken off the gloves in order to fight inflation, which it had been reluctant to do. Just a few weeks ago, Fed Chair Powell was insisting that inflation was transitory, before abandoning this stance and admitting that high inflation would remain for longer than previously expected. This will make upcoming inflation reports all the more important, now that the Fed has circled inflation as public enemy number 1.
- There are support levels at 0.7052 and 0.6933
- AUD/USD faces resistance at 0.7239. The next resistance line is 0.7307