ING: The AUD - FJElite
Australia posted some very strong jobs numbers for June this morning. Employment jumped 76k (consensus was 15k), and unemployment stayed at 4.4% despite the rise in the participation rate. May’s figures were also revised slightly higher, signalling a total of 120k job gains over two months.
This is a rather strong hawkish signal for the Reserve Bank of Australia. The return of high energy prices is likely causing fresh concerns on the inflation side, and this surprising tightness in the labour market raises the risk of second round effects. Markets are understandably pricing back a rate hike by year-end, and we see some additional short-term upward potential for front-end AUD rates. The 11 August meeting is more likely to deliver a hold, but the chance of a new hawkish tilt is increasing rapidly.
We have been optimistic about a new round of AUD strength. While we cannot ignore the risk of a break in sentiment, a resurgence in FX volatility and a hit to high-beta currencies like the Australian dollar, Australia's terms of trade are improving again. Together with the currency's relatively high yield, that should provide a more lasting source of support for the Aussie dollar. We still target 0.73 for year-end for AUD/USD.