AUD/USD reverses higher on hiring surge, overriding cyclical highs for unemployment

• Australia created 58,200 jobs in July, tripling estimates
• Unemployment rose to 4.2% as participation hit record highs
• AUD/USD, short-end Australian bond yields spike on positioning, hiring strength

Australian employment growth surges again

Australia is struggling to keep unemployment steady despite ongoing strength in hiring, reflecting the impact rapid population growth is having on labour market participation.

Employment surged by 58,200 in July, near tripling the gain expected, with the full-time workforce growing by 60,500. But that wasn’t enough to prevent unemployment lifting 0.1 percentage points to 4.2%, a fresh cyclical high. Explaining the uplift, the participation rate hit a record 67.1%, lifting 0.2 percentage points from a month earlier.

Australia has no problem generating employment. The problem is keeping up with the increase in the size of the workforce, likely reflecting that most new migrants are of prime working age.

The table below from the Australian Bureau of Statistics (ABS) shows other key figures, including an increase in hours worked of seven million with underemployment ticking lower to 6.3%. If sustained, the latter points to the possibility of continued stickiness in wage pressures.

Source: ABS

Unemployment closes in on RBA forecast

While markets have driven AUD/USD higher on the strength in hiring, the key number the RBA will be focusing on is the unemployment rate. In forecasts released earlier this month, it saw it hitting 4.3% by the end of 2024, less than 0.1 percentage points from where it sits today.

Source: RBA

Australian three-year bond yields jumped 9 basis points on the report, although long positioning in underlying bonds and futures may have contributed to the unusually large move. If that is selloff is reversed, the bounce in AUD/USD may also fade ahead of key US economic data later in the session.

Source: Refinitiv

As discussed in an earlier note, risks for the US data may be skewed towards weaker outcomes, an outcome that may generate renewed downside in AUD/USD

AUD/USD respecting known levels

AUD/USD continues to respect known levels on the daily, bouncing from support at .6568 immediately after the report. On the topside, resistance is found at the 50-day moving average and at .6715. On the downside, the 200-day moving average, .6568 and key uptrend support around .6460 are the levels of note.

-- Written by David Scutt

Follow David on Twitter @scutty

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