The Australian Dollar Jumps on Employment Data Beat, More Strength Likely
The Pound to Australian Dollar exchange rate slipped sharply ahead of the Easter weekend with data from Australia taking responsibility for the move.
The Australian Dollar was higher across the board following the release of employment data which showed the country added 60.9K workers to the workforce in the February to March period.
Markets had been expecting a reading of 20K to be announced confirming that markets have been far too pessimistic concerning the economy’s prospects with regards to this topic.
“Not surprisingly, the A$ has jumped sharply higher on the news,” says Damien McColough at Westpac Bank in Sydney. “Given the degree of focus on employment data, we see risks of some further near term strength.”
The GBP/AUD exchange rate is quoted at 1.6547 at the time of writing having been as high as 1.6680 ahead of the report’s release. The Pound had been forecast by us to potentially struggle at recent highs and we see it retracing back into its triangular formation.
The AUD/USD exchange rate is at 0.7585 having been as low as 0.7473 this week. We note the US Dollar has suffered some notable weakness over recent hours courtesy of the latest communications regarding the currency from US President Trump.
Bumper Job Gains in March
Employment bounced back in March after suffering a soft outcome in February.
Full-time jobs continue to strengthen, reversing the weakness through much of last year.
The strength was concentrated in full-time jobs which rose a massive 75k (the second largest rise on record), while part-time jobs fell 14k.
Growth in full-time jobs has turned around sharply over recent months: after falling by 129k in the nine months to September 2016, full-time jobs have grown by 159k over the past six months.
The bounce in jobs brings the official labour market data closer into line with the strength in the business surveys and ongoing moderate gains in ANZ job ads.
The unemployment rate was unchanged at 5.9%.
After tracking broadly at around 5¾% for nearly a year, unemployment is now rising in trend terms.
“We think the RBA would be pleased with the strength in employment in today’s numbers, although the stubbornly high unemployment rate will remain a source of concern,” says Felicity Emmett at ANZ Research.
However, with spare capacity in the labour market taking longer than expected to be worked off, and the resulting dampening impact on wages growth, ANZ remain comfortable with their view that the RBA is likely to be on hold for an extended period.
Thus sustained Australian Dollar gains should be limited going forward; however risks to the upside have certainly grown.
However, economist Daniel Smith with HSBC in Sydney warns that the April data could be inflated and some weakness is therefore likely in coming months.
"The headline 61k increase in employment looks promising, but it’s too early to say whether official employment growth is lifting on a sustained basis. This survey can be very volatile and has suffered from measurement issues in recent years, particularly around the seasonal adjustment process," says Smith.
The employment number could have been affected by the fact that Easter falls in April this year (versus late March in 2016).
"So there is potential for some payback in the April numbers," warns Smith.
If markets agree with this view then AUD might see its gains limited.
