Mixed employment data and RBA insist on strict policies.
On Thursday, August 18, both US and Australia released the employment numbers. In the US, we could see some hopes that made FED Daly emphasize FED aggressive policies, but Australian data were mixed.
While the Australian jobless rate dropped to a 48-year low in July, exact numbers might hint at some cooling in the red-hot labor market. The unemployment rate dipped to 3.4%, which was the lowest rate since August 1974. Actual numbers were less than analysts' estimates of 3.5% but added evidence that the labor market was drum-tight as net employment fell by 40,900 in July. Market participants and analysts were waiting for a 25,000 increase. This drop was the most considerable employment decrease since October 2021. In addition, the unemployed also fell by 20,200, but the more disappointing part was the participation rate, which fell to 66.4% from 66.8%.
Published data on Wednesday also showed that wage growth continued to rise by 2.7% quarterly in June, far behind inflation at 6.1%. In the private sector, wages did accelerate to 3.8%. With this data, the RBA has emphasized that business conditions and raising wages will increase the production price index and will only add to inflationary pressures. The central bank has already lifted interest rates by 175 basis points since May 2022, and now RBA prime rate is 1.85%. Analysts are priced at around 3.6% by April next year.
On the US front, after two weeks of increasing jobless claims, for the week ending August 12, initial claims fell by 2,000 from a week earlier at 252K. Market expectation was 265K claims. In addition, Philadelphia Fed Manufacturing Index in August increased to 6.2 from -12.3 in July, while analysts expected an increase of -5.0.
These data show that while the economy is slowing, the situation would not be that bad. So, FED can continue its tightening policies, as San Francisco Federal Reserve President Mary Daly confirmed on Thursday. Daly said raising interest rates by either 50 or 75 basis points in September would be "reasonable." In her interview with CNN, Dally added, "We need to get the rate up to neutral at least - which is around 3% - but likely too restrictive territory: a little bit above three this year and a little bit more above three next year".
Fundamental data totally support the US Dollar and increase its safe-haven demand, while Risky Aussie can be more under pressure. On the technical front, AUDUSD, with strong resistance at 0.7144, remains bearish. Under this level, support levels respectively sit at 0.6872, 0.6800, and 0.6677.
