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- The Reserve Bank of Australia has surprised investors with a hawkish shift.
- Australia is expected to have created 40K new jobs in March.
- AUD/USD is trapped between Fibonacci levels, employment to be a ‘make it’ or ‘break it’.
Australia will release its March employment figures early on Thursday, and this time, the market will be paying more attention than usual to the report. The Reserve Bank of Australia, in its latest meeting, surprised investors by turning hawkish. Policymakers are now open to hiking rates before year-end and announced they will keep a close eye on upcoming inflation and jobs data.
Job creation vs wage growth
The country is expected to have added 40K new positions in the month, while the Unemployment Rate is foreseen contracting to 3.9% from 4.0%, while the Participation rate is seen increasing to 66.5%. Back in February, Australia added 121.9K full-time positions, quite an impressive figure in the lockdown´s aftermath.
Governor Philip Lowe acknowledged that the Australian economy remains resilient in the post-decision statement, which also noted that “inflation has increased sharply in many parts of the world. Ongoing supply-side problems, Russia's invasion of Ukraine and strong demand as economies recover from the pandemic are all contributing to the upward pressure on prices.”
The Board also noted that growth in labor costs has been below rates that are likely to be consistent with inflation being sustainably at target, adding that it would assess upcoming “important” data on inflation and labor costs to set its policies.
Australia releases its Wage Price Index on a quarterly basis, and the release of the Q1 figure is scheduled for May 18. The latest release showed that the seasonally adjusted Wage Price Index rose 0.7% QoQ and 2.3% YoY. It was the highest reading since Q2 2019, although previous to the pandemic, wage growth had stagnated to on average 2.2%, well below the record high of 4.3% QoQ from 2008.
Clearly, the RBA is much more concerned about wage growth than job creation. However, the latter is directly linked to economic growth and stability. It’s rather a matter of the RBA wishing to avoid unemployment, which would be an even bigger problem, than it being concerned about the possibility of extensive hiring pushing real wages lower.
AUD/USD possible scenarios
The AUD/USD pair has retreated from a multi-year high of 0.7660 and trades in the 0.7420 price zone ahead of the event. The corrective decline has met buyers around the 38.2% retracement of the 2022 rally at 0.7395, an immediate support level. A discouraging report may push the pair below it, favoring an extension of the current bearish corrective decline towards the next Fibonacci support level at around 0.7310.
On the other hand, upbeat figures could push the pair above 0.7500, the 23.6% retracement of the aforementioned rally, leading to sustained gains towards the aforementioned 2022 high.
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