Jump in unemployment rate hits the Australian dollar

The Australian dollar fell to a two-week low on Thursday, back below the US68c mark after a rise in the country’s unemployment rate which has raised the odds of further rate cuts by the reserve Bank of Australia as the year unfolds

The unemployment moved higher to 5.3 per cent in August, which was slightly up from last months figure of 5.2 per cent according to the Australian Bureau of Statistics and although the change was not significant, it was enough to see traders placing bets that the next rate cut from the RBA will be delivered next month.

The jobs market was one of the leading indictors that had been holding up relatively well in recent months and now that it is starting to falter, a rate cut may be the only way to bring some life back to the Australian economy.

“It’s clearer than ever that there is slack in the Australian labour market,” he said. “And the RBA reiterated in the minutes of their August meeting that the ‘Australian economy could sustain lower rates of unemployment and underemployment’, so the increase in the unemployment rate would have come as a disappointment to the bank.” Said Ben Udy from Capital Economics

With rate cut talk now on the horizon, and interest rate cuts likely to come earlier than expected, the Aussie dollar should continue to weaken but should find support should it fall below US67c

"Pricing for the RBA to cut the cash rate to 0.75% on 1 Oct was only 25% into the weekend but after the labour force data was close to 80%," says Sean Callow, a strategist at Westpac.

"This is a severe headwind for AUD/USD, especially in the wake of the Fed’s reluctant rate cut which should bolster USD near term. Unless Governor Lowe douses rate cut talk, AUD/USD should slip towards 0.6700 over the week but find buyers on any dips below that figure."

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