• Higher unemployment could set the stage for RBA cuts
  • Job creation to decline from July
  • Federal Reserve rate decision and economic projections in the background

The Australian Bureau of Statistics will issue its Labour Force Survey for August at 11:30 am AEST, 1:30 am GMT September 19, 21:30 pm EDT September 18th.

Forecast

Employment is expected to increase by 10,000 in August after July’s addition of 41,100.  The unemployment rate is predicted to rise to 5.3% from 5.2% and the labor force participation rate is forecast to be unchanged at 66.1%.

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Employment and interest rates

Job creation and unemployment are two of the crucial parameters for the Reserve Bank of Australia’s (RBA) rate policy.  The central bank has cut rates twice this year in 0.25% increments from 1.5% to 1.0%, a record low, and was the second major bank to do so following the Reserve Bank of New Zealand.

The next RBA policy meeting is on October 1st and while no change is currently expected a weaker than forecast jobs number or higher unemployment rate on Thursday could prepare the ground for a November reduction.  

The RBA has shown a willingness to adapt rates to changing economic circumstances and to use policy a precaution against future developments.

The easing bias adopted is as much insurance against disruptions to the resource based Australian economy from weakening growth in her number one customer, China as a response to a decline in domestic activity. The unsettled dispute between the world’s two largest economies and the potential for deepening trade war have prompted several central banks, including the Federal Reserve to drop rates.

Australian Dollar 

The Australian Dollar has gained 2.6% against the US Dollar since its early August low of 0.6676 but on the year it is 4.9% lower versus the greenback.  

The RBA and the Federal Reserve

The Federal Reserve turn to a conditional easing policy at the July 31st FOMC has been the trigger for the recovery in the aussi.

Market focus for the Wednesday meeting will be on what indications for future policy the Fed provides. Chairman Powell initially described the July 0.25% cut, the first in 11 years, as a “mid-cycle adjustment” but after a violently negative reaction in the equities, noted that further rate cuts were possible.

Two members of the FOMC voted against the July cut citing the relative strength of the US economy.  Their argument may have gained adherents among the governors as US statistics have continued to portray a healthy economy.

The accommodative stance of the RBA is established, that of the Fed is not, at least not to the same degree.  

The Fed’s view of policy and its economic projections may have more to say about the immediate direction of the Australian Dollar than anything coming out of Sydney or Canberra.

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