Australia's employment bonanza could continue in January Forex News Preview

Australia’s employment bonanza could continue in January – Forex News Preview

Posted on February 14, 2018 at 4:10 pm GMTChristina Parthenidou, XM Investment Research Desk

The Australian labor market recorded an interrupted expansion during 2017, posting the first full year without negative marks since 1988 according to the Australian Bureau of Statistics (ABS). The number of full-time employees rose by 322,000 in 2017, reflecting 80% of the net increase in net employment during the period, while the unemployment rate finished the year at four-year lows. The Bureau now prepares to release its first employment stats since the beginning of the new year on Thursday and it would be interesting to see whether the data will be supportive enough to signal that higher wage growth is on the way.

Early on Thursday the ABS will release the first employment report for 2018, with analysts estimating that Australian economic activity will continue to generate new job positions in January for the 16th consecutive month. Yet, the number of employees added to the economy will narrow further, falling from 34,700 in December to 15,000. The participation rate is also expected to inch down by 0.1 percentage points to 65.6%, whereas the unemployment rate is seen steady at 5.5%.

The above data could show that the labor market has started the year in a strong foot, but the numbers might be less important for the forex markets as the focus remains on wage growth and whether this will eventually start rising. The rate at which wages grow touched a record low in November 2016 and remained around that level thereafter despite a stellar employment performance. The RBA now believes that incomes are unlikely to pick up for some time until the unemployment rate falls to 5.0%. But the path seems to be difficult according to the RBA Assistant Governor, Luci Ellis, who said on Tuesday that the labor market seems to be tightening given the difficulties to identify skilled workers – as business surveys show – but companies are less reluctant to raise paychecks in fear of losing competitiveness. Alternatively, they use better working conditions and hiring bonuses to avoid increasing costs.

In the consumer front, subdued incomes keep consumption under pressure as Australian households are forced to keep aside part of their budget to meet their enormous debt obligations. This is turn restrict inflation below the RBA’s target range of 2-3.0% despite the central bank maintaining low interest rates. Therefore, under these conditions, the RBA has no incentive to follow its peers by hiking its interest rates unless it sees wages picking up and consumption improving.

Turning to forex markets, aussie/dollar could crawl up to 0.79 handle, with scope to retest the 0.80 key-area if employment figures come in stronger than expected. On the flip side, disappointing prints could see the pair crossing below the 0.78 psychological level to find support at the 200-day moving average of 0.7760. The 0.76-key level could also be in focus if the report signals weakness in the labor market.

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