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The Australian Dollar rose on the jobs data, adding to the RBA Hawkishness. Will AUD/USD rally?

Australian Dollar, AUD/USD, Jobs, Unemployment, RBA, Fed, BoJ – Talking Points

  • The Australian dollar edged higher after a surprising number of jobs
  • Today’s data could prompt the RBA to follow other central banks for big hikes
  • If the AU CPI beats higher, will the oversized RBA rises rise AUD/USD?

The Aussie dollar got little help from a strong jobs report today and the RBA may need to raise rates by well over 50 basis points at its next meeting in August.

The unemployment rate in June came in at 3.5% vs. 3.8% forecast and 3.9% previously.

The overall employment change for the month was a massive 88.4,000 instead of the expected 30,000. Full-time employment increased by 52,900, while 35,500 part-time jobs were added in June.

The participation rate increased to 66.8% from 66.7% previously and is higher than the 66.7% forecast. The breadth of good news contained in this report cannot be overstated, but it can be overlooked. The market looks further down the trail and sees storm clouds brewing.

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The US CPI was released overnight and hit a shocking 9.1%. It’s a nightmare for the Fed as it tries to hit 2%.

Entrenched inflation is far worse for an economy than one or two recessions. Recession fears may eventually give way to hyperinflation concerns.

The train appears to be pulling out of the station and the Fed is desperately chasing it, with the market now pricing over 75 basis points for the next hike from them.

The Bank of Canada rose 100 basis points overnight and the RBA could consider something similar if the second quarter CPI is as high as expected in two weeks.

If we break down Australia’s quarterly CPI numbers, another shocking inflation report may be lurking.

The Australian Dollar rose on the jobs data, adding to the RBA Hawkishness.  Will AUD/USD rally?

The CPI for the second quarter of 2021 was 0.8% and this number will lower the reading of the CPI which is due out on the 27the July. The CPI for the first quarter of 2022 was 2.1%.

The first 3 months of the year only include one month of massive price increases for raw materials, notably energy and food. The most significant increases in production costs were not yet fully passed on to the consumer.

If we assume that the CPI for the second quarter of 2022 arrives at the same rate as the first quarter (2.1%), this will give us an annual reading of 6.3%.

Considering the extraordinary increase in energy, food and building materials during the second quarter of this year, there is a good chance that this figure will be much higher.

The RBA could take a giant hike at its next meeting on Tuesday 2n/a August.

Whether or not this translates into a rise in AUD/USD remains to be seen and global machinations will continue to impact the Aussie.

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— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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