Australian Jobs Preview: Weakening global economy set to hit labor market, hurt Aussie

Has Australia's labor market peaked? The Unemployment Rate is hovering around historic lows, leaving little room for improvement and opening the door for further job losses. Market consensus expects an increase in jobs for August but thre is room for a downside surprise, which would mean a second consecutive month of declines, may hurt the already vulnerable Australian Dollar (AUD). 

Here is a preview of the Australian jobs report, due on Thursday at 01:30 GMT.  

Australian Employment peaks as China struggles

In the past 12 months, Australia's jobs reports have exceeded estimates six times, a balanced record for economists. However, when they surprised to the upside, these were significant positive shocks. Australia's economy gained 76,500 positions in May, more than five times the early estimates. In March, the land down under added 60,000 positions, tripling early estimates. 

Australian Employment Change. Source: FXStreet

All in all, hiring has been hot, with occasional dips proving shallow. The robust employment market was also reflected in the rock-bottom Unemployment Rate, which hit 3.7% after failing to dig below the trough of 3.4% achieved earlier this year. 

Australia lost 14,600 jobs in July, and economists expect it to have been another temporary dip, projecting an increase of 23,000 positions in August. However, the accumulation of employment in recent months means there is room for a second consecutive drop, as seen in December 2022 and January 2023. 

Another reason to expect a weak report comes from China. Australia's main trading partner is still struggling to create growth as its property sector suffers from an immense debt crisis. China consumes raw metals such as iron and copper from Australia, as well as other goods. Prospects for a weaker economy may have deterred employers from hiring.

Australian Dollar positioning 

The Aussie has been under pressure for long weeks due to downbeat Chinese fortunes and a lack of oomph in the US stock market. Bears are in control, and even if the number of jobs created tops market forecasts, I expect the currency to turn down.The Reserve Bank of Australia (RBA) has all but ended its rate hiking cycle. Michele Bullock, the new governor, is unlikely to enact radical changes – she is an insider. Raising rates seems especially irrelevant when China is flirting with deflation.
 

Final thoughts

Australia's jobs report has a significant chance of missing expectations, weighing on the Australian Dollar. Even in the less-likely scenario of positive employment growth, the Aussie has  room for an eventual decline.