- Australian Dollar decreased due to higher unemployment rate
- Drop in AUD could benefit Reserve Bank of Australia’s fight against inflation
- AUD/USD exchange rate has not yet reached overnight low
- Uncertainty about how low AUD will go if exchange rate drops further
The Australian Dollar took a hit amid a disappointing employment report that revealed a surge in the unemployment rate.
However, this unexpected turn of events could alleviate rising price pressures, preventing the RBA from raising interest rates in June.
In April, the unemployment rate rose to 3.7%, higher than the anticipated 3.5%. The number of Australians who lost their jobs was 4.3k, far below the expected jobs addition of 25k and 53.0k from the previous month. Loss of full-time jobs stood at 27.1k, which is especially noteworthy.
The result is investors have pushed back expectations of RBA hiking rates, now pricing in less than a 50% chance of a rise this year. While an increase in unemployment is never good news, this came as a relief to those reeling under high CPI at 7.0%.
On a brighter note, the wage price index rose by 0.84% this year’s first quarter compared to 0.85% previously. This translates to a 3.7% hike in year-on-year wages.
However, the Australian economy is experiencing a price-wage inflation spiral rather than a wage-price spiral, as was the case in the 1970s and 80s. Public and private sectors are negotiating wage increases to keep up with inflation.
But if this trend continues, inflation may become entrenched or embedded, which could be problematic. Central bankers usually frown upon this scenario.
Consumers generally pay more for items today if they think they will cost more tomorrow. Monetary policies play a significant role in shaping perceptions and curbing inflation. Although the jobs report might indicate a loosening of the tight labor market, the RBA still has a lot to do.
At their last meeting, the bank cited the risk of CPI re-accelerating, keeping the gauge beyond the mandated target band of 2-3%.
The AUD/USD plunged to 0.6630 following the data release but has since shown a slight recovery. The ASX 200 reacted similarly and remains positive as of the time of writing.
AUD/USD Moves Sideways for Months, Expert Traders Use These Strategies
The Australian dollar and US dollar have been trading steadily within a lateral channel since early March. This sideways trend creates an ideal opportunity to use range trading strategies.
With the market hovering around its upper and lower technical boundaries, neither buyers nor sellers have the upper hand.
Range trading strategies have been known to be particularly useful in such situations. First, traders should identify the range boundaries that the asset has been trading in recently.
Once known, traders can take advantage of the range by buying near the support line and selling short around the resistance level.
Currently, AUD/USD is trading below the critical ceiling of 0.6720. However, if the area is broken, it could rise further and reach 0.6800, opening up range trading potential.
Conversely, if Australian currency moves lower, the market may range downwards to 0.6575 – creating unique opportunities to trade and make profitable moves!
All information has been prepared by TraderFactor or partners. The information does not contain a record of TraderFactor or partner’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may read it. Past performance is not a reliable indicator of future performance.