Australia Reports Bumper set of Jobs Data

- Aus records two months of +100K jobs gains
- But AUD on the backfoot
- Market disappointment in wake of Fed meeting pulls AUD lower

Aus Dollar

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Australia reported a bumper set of jobs data on Thursday but the buoyant domestic news was not enough to prevent the Australian Dollar from losing value, confirmation that the currency's primary considerations lie in the global sphere.

Indeed, it appears a sell-off in global equities following the U.S. Federal Reserve policy event has taken hold of the Australian Dollar and is pulling it lower.

The domestic picture should nevertheless limit the downside: Australia reported employment rose 111K in August according to the ABS, well ahead of an expectation held by markets for a reading of -50K to be reported. The economy has therefore added over 100K jobs for two months in succession, given July's reading of +114.7K.

The unemployment rate meanwhile fell to 6.8%, which is well below the 7.7% markets were expecting.

"Australia's employment outside Victoria surges," says Catherine Birch, an economist with ANZ Bank. "The August labour market data were a very welcome surprise to the upside."

Aussie employment

Image courtesy of ANZ Bank

However, the state of Victoria appears to have struggled under the strict lockdown and saw employment fall 42k (−1.3%), approaching the previous low recorded in May. However, with signs lockdown in the state could soon be eased now that covid-19 infections have fallen below a specific threshold, the employment situation should rapidly improve over coming weeks.

Despite signs of improvement, ANZ's Birch is cautious for the outlook.

"While the continued improvement outside Victoria has been very welcome, we are not celebrating just yet. As the survey reference period covered the first half of August, when Stage 4 restrictions in Melbourne and Stage 3 in regional Victoria were only just introduced, we will likely see Victorian employment and hours worked fall further in September. And past September, the scheduled material reduction in direct fiscal support for businesses, workers and households will pose a challenge to the employment recovery," says Birch.

The Australian Dollar is softer across the board in the wake of the employment data, confirming external drivers are dominating.

We noted in a recent piece that the Australian Dollar's fortunes are heavily reliant on the valuation and direction of the Chinese Yuan, which is itself likely to respond to the broader sentiment of global investors; both the AUD and CNY would tend to rise when global markets are displaying optimism and fall when the opposite is true.

Falling stock markets and commodity prices on Thursday September 17 are taking their toll, with the finger of blame pointed squarely at the U.S. Federal Reserve which failed to feed the market's appetite for the creation of more cheap money.

The Fed remains the prime driver of global equity market valuations and analysts are saying a decision to keep the bond buying programme unchanged at $120BN per month could have disappointed markets.

"The classic risk-off reaction is testament to market’s disappointment," says Mathias Van der Jeugt, analyst at KBC Markets. "Some hoped the Fed would increase the pace, especially against the backdrop of Congressional stimulus talks at an impasse and Powell saying government support is crucial to keep the recovery running."

The U.S. Dollar has benefited in this 'risk off' market environment, pushing the CNY and AUD down in tandem, confirming the near-term outlook will likely depend on where stock markets head over coming days.

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