FX comment – Australian dollar declines after weaker than expected employment data

by: Roy Teo

Australian dollar under pressure after unemployment rate in July surge

At the time of writing, the Australian dollar had declined by 50 pips to 0.9300 after July’s employment report disappointed. Against market expectations of a 13.2k increase in jobs, the economy cut 300 jobs led by a 14.8k decline in part time jobs. The unemployment rate jumped from 6.0% to 6.4% as the participation rate also increased. Though we acknowledge that the job market remains soft and fragile, we judge that July’s surge in the unemployment rate to be anomaly and expect some payback (decline in unemployment rate) in the coming months. This is based on the fact that we see encouraging signs in areas such as job advertisements and in the employment sub indices in the construction and service sectors. In addition the trend in full time jobs has been encouraging since the beginning of this year. The economy added 109.4k full time jobs in the first seven months of this year compared to 62.1k decline in 2013. Looking ahead we expect the Australian dollar to head lower towards 0.92 in the coming months as economic data releases continue to reinforce our view that the US economy is improving at a faster pace than Australia’s.