Preview: Australian Labour Force and what comes next for the AUD/USD

The local contribution to this Thursday’s action-packed calendar of tier-one macro events is Australian labour force data for November.

Last month total employment bounced back strongly by 32k, following a 3.8k fall in September, keeping the unemployment rate at a 50-year low of 3.4%.

The release of NAB Business Confidence data earlier today showed that the employment intentions of businesses fell again in November in line with the easing in job ads and vacancies.

However, all remain elevated, priming the market for another solid job report on Thursday.

What does the market expect?

The market expects to see total employment rise by 17k jobs and for the participation rate to hold steady at 66.5%. A combination that will keep the unemployment rate stable at 3.4%, the lowest level since 1974.

A tight labour market and elevated inflation are the key reasons why the RBA elected to raise interest rates by 25bp last week to 3.1%. How quickly both readings cool will determine how many rate hikes the RBA deliver in 2023.

In a December 6 statement, Governor Philip Lowe stated, "The Board’s priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time." However, “The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”

Currently, the Australian interest rate market is priced for another 50bp of rate hikes for the first half of 2023, which would take the cash rate to 3.60%. However, rate hike expectations and a rapid easing of Covid restrictions in China have not been enough to see the AUD/USD gain a meaningful toe hold above .6800c.

This fits with the view that the rally from the October .6107 has been countered and that the AUD/USD needs to first break above resistance in the .6800/50 region and then a sustained break above the 200-day moving average at .6907 to negate medium-term downside risks.

Aware that should the AUD/USD fail to negotiate these resistance levels, a return to .6450 is likely.

AUD/USD daily chart

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