RBA18957

Aussie eyes employment report before RBA minutes next week

Melina Deltas Analysis

Australia’s employment report for May is likely to attract investors’ attention and is scheduled for release on Thursday at 0130 GMT. The unemployment rate is forecasted to tick lower to 5.5% for the month of May from 5.6% in the preceding month, while the employment change is expected to show that the economy added 18,000 jobs, 4,600 jobs less than the previous month. Meanwhile, the participation rate is predicted to remain unchanged at 65.6%.

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The nation’s seasonally adjusted unemployment rate unexpectedly edged up to 5.6% in April from 5.5% in the prior month. It is the highest jobless rate since last July, even though the economy added 22,600 jobs.

Despite that the number of unemployed increased by 10,600. Moreover, the labor force participation rate increased to 65.60% in April from 65.50% before, as more people entered the workforce. However, weaker releases in the coming months could push the RBA to be neutral for a longer period.

Turning to monetary policy, on June 19 the Reserve Bank of Australia (RBA) will publish the minutes of its last meeting that took place on June 5. The RBA left the cash rate unchanged at a record low of 1.5%, as widely expected.

Policymakers referred that the Australian economy is predicted to advance a bit above 3% in 2018 and 2019, supported by positive business conditions and rising non-mining investment, while consumer prices are likely to remain low for some time.

Inflation rose by 1.9% through the year to the March quarter, the same as in the previous quarter. Additionally, the economy grew an annual 3.1% in the first quarter of 2018, following a 2.4% expansion in the prior quarter and above expectations of a 2.8% growth. It is the fastest annual growth rate since Q2 of 2016.

In the previous week, on June 7, senior officials from Australia’s Department of Foreign Affairs and Trade met representatives from the foreign ministries of India, Japan and the US in Singapore.

The officials continued discussions on promoting an open, inclusive and prosperous Indo-Pacific where all countries respect the sovereignty and international law, freedom of navigation and overflight, and sustainable development.

The revival of the Quadrilateral Security Dialogue, aimed at curbing China’s influence in the region, risks further damaging already strained relations between Canberra and Beijing. China is Australia’s biggest export destination and worsening relations could harm Australia’s export-dependent miners.

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Having a look at aussie/dollar, in the medium-term, the price completed three consecutive green weeks, with low volatility after the rebound on the 0.7410 support level on May 9.

A worse-than-expected figure could create a downward pressure for the pair and would retest the 0.7475 support level in the daily timeframe. In case of a penetration of this area, the bullish retracement could come to an end and hit the 11-month low of 0.7410. The next support is coming from the 0.7325 barrier, taken from the low on May 2017.

If the employment report surpasses the consensus, then the price could create a rally until the 0.7675 strong resistance level in case of a jump above the 23.6% Fibonacci retracement level of the downleg from 0.8135 to 0.7410, around the current market price of 0.7585.

Slightly above this area, the price could meet the 38.2% Fibonacci near 0.7690. In addition, a break above the aforementioned obstacle could open the door towards the next immediate resistance of the 50.0% Fibonacci of 0.7770.