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AU labour force preview and what comes next for the AUD/USD

On Thursday, Australian labour force data for December is due to be released at 11.30 am AEDT.

Source: Bloomberg

In November, total employment increased by 64k, keeping the unemployment rate at a 50-year of 3.4%. This month, employment growth is expected to slow to 25k, in line with a softening in recent surveys, and after last week’s ABS, job vacancies fell by 4.9% over the three months to November. The unemployment rate is expected to remain unchanged at 3.4%.

Despite the decrease, the level of job vacancies in November 2022 remained at elevated levels. Job vacancies were 94.9% higher than they were in February 2020, before the start of the pandemic.

The strong labour market today played a part in a 5% rise today in the Westpac Consumer Sentiment index in January – its largest monthly gain since April 2021. January was the first month “since April last year that did not see an increase in the RBA cash rate.”

Within the details, unemployment expectations improved.

A strong labour market is partly behind today’s rise in consumer confidence, robust household spending as well as high wages and inflation, all of which have contributed to the reasoning behind the RBA’s current rate hiking cycle.

Looking ahead, the Australian interest rate market is about 50% priced for a 25bp rate hike at the RBA’s board meeting in February, which would take the cash rate from 3.10% to 3.35%. Further along the rates curve, the market then expects another 25bp rate hike in the first half of 2023, which would take the cash rate to 3.60%, projected to be at or near the RBA’s peak.

Turning to the AUD/USD, the local unit rejected its first forage above .7000c in four months yesterday on news that China’s National Development and Reform Commission will crack down on spreading false information and price gouging in the iron ore market.

In the short term, the AUD/USD does appear a little stretched and due some consolidation/corrective price action to work off overbought readings into Thursday’s employment report.

However, providing the band of support between .6830 (the 200-day moving average) and .6800c (uptrend support from the November .6272 low) holds the uptrend remains intact, and the AUD/USD can continue to march higher towards the August .7137 high.

AUD/USD daily chart

Source: TradingView

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