Australian Dollar gathers strength above 0.7000 on resilient Australian labor data
- AUD/USD gains ground to around 0.7010 in Thursday’s Asian session.
- Australia’s Unemployment Rate steadied at 4.4% in June, as expected.
- Iran warned of a response if the US follows through on Trump’s threats to destroy infrastructure.
The AUD/USD pair holds positive ground near 0.7010 during the Asian trading hours on Thursday. The Australian Dollar (AUD) edges higher against the US Dollar (USD) following Australia’s employment data. Traders will closely monitor the developments surrounding the Middle East conflict.
Data released by the Australian Bureau of Statistics (ABS) on Thursday showed that the country’s Unemployment Rate held steady at 4.4% in June. The figure came in line with the market consensus of 4.4%. Meanwhile, the Australian Employment Change came in at 76.3K in June, compared to a rise of 44K in May (revised from 40.3K), better than the forecast of a 15K increase.
The Aussie attracts some buyers in an immediate reaction to the employment data. This report is closely monitored by the Reserve Bank of Australia (RBA) when assessing the appropriate stance of monetary policy. Stronger-than-expected outcomes signaled a resilient labor market, leading to a more hawkish stance from the Australian central bank.
On the other hand, ongoing conflicts in the Middle East could boost a safe-haven currency such as the Greenback and cap the upside for the pair. Iran’s Foreign Minister Abbas Araghchi said on Wednesday that Tehran would respond in kind to any attack on its infrastructure, after US President Donald Trump threatened to bomb a bridge or power plant for every ship targeted in the Strait of Hormuz.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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