Australian Employment Preview: unlikely to trigger sustainable gains

Australia will release this Thursday its June employment data. The economy is expected to have added 10.0K new jobs in the month, after adding 42.3K positions in May. The unemployment rate is foreseen steady at 5.2%, and the same goes for the participation rate, seen unchanged at 66.0%. Back in May, the economy added 39.8K part-time jobs, and just 2.4K full-time ones, usually seen as negative, despite the impressive headline. Also, wage growth is currently running at 2.3% YoY, well below the 4.0% considered “healthy” average. Depressed wages are a drag for inflation, and subdued inflation has resulted in the RBA cutting rates for two months in-a-row.

Wages “unlikely” to return to desired levels

 Ahead of the release of the first-tier report, Australian federal Treasury economists issued a research document, which showed that part of the weakness in wages growth over the past decade could be attributed to less job switching by workers.

Treasury deputy secretary Meghan Quinn said that the analysis “highlights the fact more frequent job switching is associated with higher real wage growth, even for those that stay in their job," adding that, without structural reforms encouraging workers to move between jobs, wage growth will be unlikely to return to the desired levels.

Meanwhile, trade tensions between the US and China returned. US President Trump said that they had a long way to go with China on trade, adding that they could impose tariffs on another $325 billion worth of Chinese imports if they wanted to. In the case of the Aussie, the negative effect of trade tensions is being offset by Wall Street hovering at record highs

AUD/USD possible scenarios

The employment report could trigger some action around Aussie’s crosses, but given the above-mentioned issues, it would likely be short-lived. The Australian dollar’s direction would likely have more to do with the market’s sentiment than with employment figures.

Nevertheless, an upbeat report which showed a robust creation of full-time jobs can push the Aussie beyond 0.7050 and trigger some stops, resulting in a continued advance toward the 0.7100/10 price zone.  Gains beyond this last are unlikely to last long, although it will depend on Asian equities’ behavior.

Discouraging data, on the other hand, may result in the pair falling to fresh weekly lows sub-0.7000, with a break below 0.6980 opening doors for a steeper decline.

Conclusion

 Unless the final numbers post a wide divergence with the market’s forecasts, the report will have a limited effect on the Australian Dollar, with more chances of a bearish run in the case the report misses, than of a rally in the case it surprises to the upside.