Australian Dollar reacts little to dismal jobs data; holds above weekly low vs weaker JPY

AUD/JPY dips in reaction to dismal Australian jobs data, though it lacks follow-through selling.
Japan’s fiscal woes and the wide rate gap undermine the JPY, lending support to spot prices.
Weakness below the weekly trough is needed to back the case for any further corrective slide.

Haresh Menghani FXStreet

The AUD/JPY cross attracts some sellers following the release of a dismal Australian jobs report, though it lacks follow-through and holds above the weekly low touched the previous day. Spot prices currently trade with modest gains around the 112.75 region and, for now, seem to have snapped a two-day losing streak.

According to the official data published by the Australian Bureau of Statistics (ABS), the Unemployment Rate climbed to 4.5% in July from 4.4% in the previous month. Additional details revealed that the number of employed people fell by 15.8K during the reported month, down from a rise of 76.3K in June and missing estimates for a 15K rise. This comes on top of soft Australian Q2 CPI inflation data and forced traders to pare back bets for an immediate rate hike by the Reserve Bank of Australia (RBA), which is seen as weighing on the Australian Dollar (AUD) and the AUD/JPY cross.

Strategists at Rabobank highlight that market expectations for further RBA tightening remain muted, with "market implied policy rates currently priced for just 12 bps of rate hikes on a 3-month view." They note that broader market commentary is increasingly focused on a "list of headwinds including weaker Chinese demand for Australian commodities and a softer domestic economic climate" as factors "potentially undermining the AUD going forward."

The Japanese Yen (JPY), on the other hand, came under some selling pressure in reaction to rather unimpressive domestic trade data, which showed a deficit of ¥634.5 billion in July. Apart from this, concerns about Japan's worsening fiscal condition, along with the wide interest rate gap between Japan and other major economies, continue to undermine the JPY and help limit the downside for the AUD/JPY cross. Hence, some follow-through selling is needed to back the case for an extension of this week's retracement slide from the 113.60 region, or the monthly swing high.

Economic Indicator

Unemployment Rate s.a.

The Unemployment Rate, released by the Australian Bureau of Statistics, is the number of unemployed workers divided by the total civilian labor force, expressed as a percentage. If the rate increases, it indicates a lack of expansion within the Australian labor market and a weakness within the Australian economy. A decrease in the figure is seen as bullish for the Australian Dollar (AUD), while an increase is seen as bearish.

Why it matters to traders?

The Australian Bureau of Statistics (ABS) publishes an overview of trends in the Australian labour market, with unemployment rate a closely watched indicator. It is released about 15 days after the month end and throws light on the overall economic conditions, as it is highly correlated to consumer spending and inflation. Despite the lagging nature of the indicator, it affects the Reserve Bank of Australia’s (RBA) interest rate decisions, in turn, moving the Australian dollar. Upbeat figure tends to be AUD positive.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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