Australian Employment Preview: Disappointment to be the order of the day

• Australian economy expected to have added 10,000 new jobs in January.
• Wages’ growth remains stagnated at 2.2% YoY and well below trend.
• AUD/USD at risk of breaking through an over one-decade low of 0.6661.

The AUD/USD pair is battling with the 0.6700 figure and not far from over a one-decade low of 1.0661 heading into the release of Australian employment data. The country is expected to have added 10,000 new jobs in January, after adding 28,900 in the previous month. However, all of these positions were part-time, as the country lost 300 full-time positions. The unemployment rate is seen ticking to 5.2% from 5.1% while the participation rate is seen steady at 66%.

Coronavirus hitting economic growth

The Australian economy has been performing decently in terms of growth, as the country’s GDP has been positive for almost three decades. Depressed inflation and stagnated wages’ growth, however, have forced the central bank to cut rates three times last year to a record low of 0.75%.

RBA´s Governor Lowe said that the economy was in a “gentle turning point” a couple of months ago, but then came the wildfires that affected millions of acres and would mean a sharp drop in GDP growth, as the losses are estimated in more than $100 billion. To top it all, China’s coronavirus outbreak is taking its toll on global growth.

The world’s second-largest economy has been adding stimulus to smooth the effects of having half country paralyzed in quarantine, but clearly, it was not enough. Big names such as Apple and Adidas have already warned they won’t be able to meet sales expectations due to shutdowns in China. Fear rules, and while there are temporal relief recoveries, the situation is far from over.

The RBA has acknowledged the risk of the outbreak in its latest meeting, opening doors for a rate cut.

Unimpressive wages’ growth

In the meantime, Australian wages’ growth remains stagnated. The latest quarterly Wage Price Index showed that wages were up by 0.5% QoQ and by 2.2% YoY by the end of 2019, matching the previous quarter figures, and well below average. Depressed salaries have been affecting household consumption. Cutting rates to boost consumption risks creating a bigger problem, the possibility of a borrowing bubble in times debt is at all-time highs.

The RBA would be in a much more comfortable place if the unemployment rate comes down to 4.5% and annual wage growth jumps above 3.0%, both had to achieve throughout this year, moreover with the current Chinese crisis.

AUD/USD possible scenarios

A better market mood ahead of the release is helping AUD/USD to stay afloat, although unable to run beyond the 0.6700 level. A critical support level comes at 0.6661, the low set this year and a level previously seen in March 2003.

The pair is heading into the release down for a fifth consecutive day, which somehow suggests that the market needs little to push it further lower.  Large stops should be gathered below 0.6660, and once triggered, may spur a bearish run toward the 0.6600 level.

Upbeat numbers could trigger some profit-taking, leading to a bullish correction. However, it seems unlikely that the pair could sustain gains beyond the 0.6740 price zone.