Australian unemployment rate expected to stabilize for third consecutive month in September

The Australian Unemployment Rate is foreseen stable at 4.2% in September.
Employment Change is expected at 25K, focus will be on the details.
AUD/USD is technically bearish, so any data-inspired spike may attract sellers.

The Australian Bureau of Statistics (ABS) will release the monthly employment report at 00:30 GMT on Thursday. The country is expected to have added 25K new positions in September, while the Unemployment Rate is foreseen stable at 4.2%. The Australian Dollar (AUD) has weakened against the US Dollar (USD) ahead of the event, with the AUD/USD pair trading below the 0.6700 mark.

The ABS reports Employment Change separating full-time from part-time positions. According to its own definitions, full-time jobs imply working 38 hours per week or more and usually include additional benefits, but they mostly represent consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. That’s why full-time jobs have more weight than part-time ones when setting the directional path for the AUD.

Back in August, the monthly employment report showed that Australia managed to create 50.6K part-time jobs while losing 3.1K full-time positions, resulting in a net Employment Change of 47.5K. The Unemployment Rate, in the meantime, stayed at 4.2%.

Australian Unemployment Rate seen steady in September

As previously noted, financial markets anticipate the Unemployment Rate to be at 4.2%. If that’s the case, it will be the third consecutive reading at such a level. Job creation, in the meantime, is foreseen to have grown at a solid pace.

However, market players will be more attentive to details. The strong headline figure from August showed that most jobs created were part-time, while the country lost full-time positions. That’s usually bad news for the economy, regardless of the total. Still, it could be seen as good news regarding monetary policy updates.

The creation of part-time positions, generally understood to have lower wages and fewer benefits than their counterparts, is usually seen as a weakness in the labor market.

The Reserve Bank of Australia (RBA) is in no rush to trim the interest rate. The Official Cash Rate (OCR) has been steady at 4.35% for almost a year now, as the labor market has remained tight. Indeed, it helped bring headline inflation down towards the RBA’s goal to between 2% and 3%, with core inflation still high. Besides easing inflation, the RBA requires a looser job sector to ease the monetary policy.

With that in mind, the sharp increase in part-time jobs in August sparked a bit of hope among those expecting the RBA will soon start lowering the OCR. But a swallow does make a summer. A one-stand macroeconomic report signaling in the “right” direction is not enough. However, if September employment figures point in the same direction, there is a good chance market players will start pricing in an interest rate cut. Three reports in a row will be heaven for doves.

In the meantime, RBA Governor Michele Bullock repeated after the September meeting that underlying inflation remains too high and that the time to trim interest rates has not yet come. At the time being, market players are betting the central bank will deliver a rate cut in February 2025.

When will the Australian employment report be released, and how could it affect AUD/USD?

The ABS will publish the September employment report early on Thursday. As previously stated, Australia is expected to have added 25K new job positions in the month, while the Unemployment Rate is foreseen at 4.2%. Finally, the Participation Rate is expected to hold at 67.1%.

Generally speaking, a strong report will boost the AUD, even if the larger increase comes from part-time jobs. Any weak underlying subcomponent will likely fuel hopes of rate cuts, but not enough to trigger an AUD sell-off. The opposite case is also valid, with soft figures putting pressure on the Aussie.

Ahead of the announcement, the AUD/USD pair trades a handful of pips below the 0.6700 mark and is technically bearish.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair is trading below the 61.8% Fibonacci retracement of the 0.6621-0.6941 rally at 0.6743, meaning there is a good chance the pair will soon test the bottom of the range. The bearish case is also being supported by technical indicators, as the Momentum and the Relative Strength Index (RSI) head firmly south well below their midlines in the daily chart, reflecting persistent selling interest. At the same time, the pair is currently battling with a directionless 100 Simple Moving Average (SMA) while the 20 SMA gains bearish traction over 100 pips above the current level.”

Bednarik adds: “AUD/USD may surge towards the aforementioned Fibonacci resistance level with an upbeat report, but given the dominant trend, sellers may take their chances around it once the dust settles. Near-term support comes at 0.6670 en route to the 0.6620 price zone. A break below the latter should favor a near-term extension towards a strong static support area surrounding the 0.6570 mark.”

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

RBA FAQs

What is the Reserve Bank of Australia and how does it influence the Australian Dollar?

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.

How does inflation data impact the value of the Australian Dollar?

While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.

How does economic data influence the value of the Australian Dollar?

Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.

What is Quantitative Easing (QE) and how does it affect the Australian Dollar?

Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.

What is Quantitative tightening (QT) and how does it affect the Australian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.