Australian Employment Preview: Good news could be bad news for the RBA

Australia will publish June employment figures early on Thursday, following the release of mildly hawkish Reserve Bank of Australia (RBA) Meeting Minutes. According to the market forecast, the country is expected to have added 15K new job positions in the month, well below the previous 75.9K. Breaking down the figure, the country added 61.7K full-time positions in May, and 14.3K part-time jobs, which was pretty encouraging yet worrisome at the same time.

The Australian labor market is still too tight. The seasonally adjusted Wage Price Index (WPI) rose 0.8% in the first quarter of the year and 3.7% annually, according to data released today by the Australian Bureau of Statistics (ABS), a decade high. Low unemployment drove nonimal wage growth, with the Unemployment Rate expected to have remained steady at 3.6% in June. The Participation Rate is also foreseen unchanged at 66.9%.

RBA Minutes stated that “the slowdown in activity had had only a modest effect on the labour market, with conditions remaining tight. Employment growth had continued to be robust and measures of spare capacity remained near multi-decade lows.” Policymakers also noted that broader measures of labor costs had grown around their fastest pace in over a decade, but adding that total real household incomes had declined by 4% over the year to the March quarter amid rising prices.

Bottom line, a tight labor market continues to be a risk factor that the central bank cannot ignore. The RBA may need to resume hiking the Cash Rate, particularly if the employment report results upbeat.

AUD/USD possible scenarios

The AUD/USD pair will likely react to how the employment figures impact future RBA decisions rather than the number themselves. If the outcome is much better than anticipated, it will be read as a potential hike in August, which can negatively affect local markets. A risk-off run among stocks could well push AUD/USD lower, despite positive figures.

On the other hand, a softer-than-anticipated result could end up being good news for the Aussie, as it would mean the RBA can stay on hold and the country to avoid an economic downturn.

AUD/USD trades around the 38.2% Fibonacci retracement of its 0.6598/0.6894 rally at 0.6780 after several failed attempts to run past the 23.6% retracement at 0.6825. Despite the broad US Dollar weakness and the positive tone of global indexes, the pair is down for a fourth consecutive day ahead of the event, which suggests speculative interest is looking for a reason to keep selling. The next Fibonacci support and a potential bearish target is at 0.6745, while below the latter, the slide could extend towards the 0.6710 price zone.  

The pair would need to run past 0.6840 to gain additional ground, aiming then for a test of the 0.6900 mark.