AUD/USD consolidates in the 0.7750s amid more cautious market feel

• AUD/USD is off Asia Pacific session highs as markets adopt more of a cautious feel.
• The pair is still above 0.7750, however, aided by a decent December Aussie jobs report.

AUD/USD moved higher during Thursday’s Asia pacific hours, seemingly deriving something of a boost from a solid December Aussie labour market report, as well as from overarching USD weakness. The pair rallied from around 0.7740 to highs in the 0.7780s but has since come off the boil a little amid a more cautious/mixed feel to trade on the day. At present, the pair trades in the 0.7750s, with gains on the day now standing at only just over 0.1% or around 10 pips.

AUD subdued versus most of its non-USD G10 counterparts

AUD/USD is higher on Thursday on account of the softer US dollar but is not outperforming most of its other G10 counterparts. Indeed, it is hard to argue that broader market sentiment is “risk-on” on Thursday (which would be conducive to AUD outperformance versus it’s G10 peers), given that US equities are barely higher, crude oil markets a little lower, industrial metal prices are mixed and gold a little lower. Typically, one would see AUD outperformance primarily when these risk assets are all rallying together.

Australian labour market data recap

The Australian economy added 50K jobs in December, bang in line with expectations and a slight moderation on the prior month’s more impressive 90K in job gains. But 50K is still a respectable number and 35.7K of these jobs were in full-time employment, so December was a decent month for Australian workers. Meanwhile, the participation rate rose back to record highs at 66.2% as expected and the unemployment rate fell a little more than expected to 6.6% from 6.8% in November, still some ways of pre-Covid-19 levels close to 5%. As employment approaches its pre-Covid-19 levels, the rate of job gains is likely to continue to moderate.

Looking ahead, Capital Economics think “the unemployment rate will continue its descent”, noting that “job vacancies have continued to rise suggesting labour demand remains high, so we expect employment to continue to recover towards pre-virus levels in the months ahead”. The consultancy points out that “the RBA has previously said that a better than expected labour market performance would weaken the case for extending its asset purchases”. “Given that the RBA’s last set of forecasts showed the unemployment rate rising to a new peak of 8% in Q4 of 2020”, CapEco continues, “it’s clear that the labour market has surprised to the upside... (and) on that basis we expect the RBA to end QE when the current purchases end in April”.