AUD/JPY drifts lower to below 96.50 as Australian Unemployment Rate hits 3.5-year high
- AUD/JPY edges lower to around 96.35 in Thursday’s early Asian session, losing 0.18% on the day.
- Australia’s Unemployment Rate climbed to 4.3% in June vs. 4.1% prior, signaling potential for more rate cuts.
- Reduced expectations for an immediate BoJ rate hike might weigh on the Japanese Yen.
The AUD/JPY cross faces some selling pressure near 96.35 during the Asian trading hours on Thursday. The Australian Dollar (AUD) weakens against the Japanese Yen (JPY) as Australia’s Unemployment Rate jumps to a three-and-a-half-year high in June. Traders await Japan’s June National Consumer Price Index (CPI) inflation data due later on Friday for fresh impetus.
Australian employment grew substantially in June. Data released by the Australian Bureau of Statistics (ABS) on Thursday showed that the country’s Unemployment Rate rose to 4.3% in June from 4.1% in May. This reading came in above the market consensus of 4.1% and registered the highest since late 2021. This employment report supported the case for a Reserve Bank of Australia (RBA) rate cut next month, which exerts some selling pressure on the Aussie.
“The consecutive poor jobs prints and the jump in unemployment rate to 4.3% is likely to spook the RBA,” said Alex Loo, a macro strategist at Toronto-Dominion Bank in Singapore. “Investors are likely to read that the RBA may opt for consecutive cuts in August and September now,” Loo added.
On the other hand, slowing economic growth in Japan and tariff uncertainty might reduce bets for an immediate Bank of Japan (BoJ) rate hike. This, in turn, might cap the upside for the JPY and act as a tailwind for the cross.
Furthermore, BoJ may face political pressure to keep interest rates low for longer than it wants, as Japan’s Prime Minister Shigeru Ishiba's coalition may lose the upper house majority in Sunday's vote. Analysts expect that if opposition groups gain traction, that could boost bond yields and complicate the BoJ's efforts to normalise monetary policy.
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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