Australian Employment Preview: Could strong figures aid the aussie?

Australia is set to report its April employment figures on Thursday, May 19. The country is expected to have added 30K positions in the month, while the unemployment rate is foreseen down to 3.9% from the current 4%. But could these numbers be enough to boost the aussie?

The Reserve Bank of Australia has hiked the cash rate by 25 bps earlier this month, the first movement in over a decade. The decision was previously conditional on inflation but also on wage growth. The Minutes of the meeting released earlier in the week showed the Board noted that information on “wages over the preceding month had been consistent with more persistent inflationary pressures arising from limited spare capacity in the domestic economy.”  

Disappointing wage growth

Policymakers linked rate hikes to actual inflation remaining sustainably within the 2 to 3 per cent target range, and this was likely to require a faster rate of wages growth than had been experienced over the preceding years.

However, The Australian Q1 Wage Price Index, released early on Wednesday, disappointed, rising only a modest 0.7% in the quarter while increasing at an annualized pace of 2.4%. The central bank was looking for the Wage Price Index to be around 3¾ per cent by the end of the forecast period, which would be the fastest pace since 2012.

With that in mind, the softer pace of wage growth could put a brake on further rate hikes, regardless of strong job creation. All in all, a solid employment report could provide just temporary support to the local currency.

AUD/USD possible scenarios

Technically speaking, the daily chart for the AUD/USD pair shows that the risk is skewed to the downside. The pair is down for the day after peaking well below a bearish 20 SMA. Technical indicators, in the meantime, have pared their advances, turning flat within negative levels.

The AUD/USD pair is trapped between Fibonacci levels, contained by the 50% retracement of the latest daily decline (measured between 0.7265 and 0.6828) at 0.7045. The 38.2% retracement at around 0.7000, meanwhile, is providing support. A break through any of these levels should lead to some directional strength, although a discouraging figure that results in a weaker AUD/USD would likely see a larger movement than that triggered by an upbeat report.

A clear slide below the 0.7000 level could see the pair initially falling to 0.6960 and later towards the 0.6900 figure. On the other hand, an acceleration through 0.7045 could see the pair nearing the 0.7100 figure, where sellers will likely re-appear.