Yesterday’s strong AUD employment report has helped further meet one of the RBA’s three guiding principles. This means the RBA is set to turn more bullish over the coming weeks. One of those key principles has been a movement towards full employment. Yesterday the unemployment rate fell to a 13 year low and the headline showed a jump higher on jobs of 64.8K. 41.5K jobs added were full time.
Westpac bring forward their rate hike scenario
Westpac now sees Australia hiking in August this year with a 15bps rate hike. This has been brought forward from February 2023. So, a good 6 months acceleration in the path towards normalisation. That is a validation of the RBA’s more optimistic stance that the economy can return to its pre-delta path in the first half of 2022. The movement higher of wage growth and inflation also supports higher interest rates.
Iron Ore and Coal prices have been steadily moving higher which all support the AUD.
The PBOC cut interest rates by 10bps this week. Chinese lenders also lowered borrowing costs again to boost economic growth this week and Chinese regulators are considering making it easier for builders to access certain funds from pre-sold properties. If you look at the Chinese 50 index overlayed on the AUD you can see how close they track each other. This is because Australia’s largest trade partner is China. So, what’s good for China Is good for the AUD. Easing for the Chinese economy supports Chinese companies and a result of that will be AUD support.
This means that the AUDUSD is at a very interesting place. The Fed meet next week and it is hard to imagine a scenario where they exceed the market’s bullish expectations. If they disappoint markets then the AUDUSD upside looks attractive from here.