The Australian dollar is under pressure again today after the release of official Australian Bureau of Statistics jobs data showing the unemployment rate remained at 5.2% in May, with mixed jobs growth. While not totally unexpected, markets had been looking for more positive results, fuelling speculation further interest rate cuts from the RBA could be just around the corner. Today, 1 AUD will buy you:
Employment increases slightly, but the AUD bears are circling
According to ABS data released this week, Australia's economy had a mixed month in May when it came to jobs creation. While 42,300 new jobs were created despite markets only banking on a 16,000 increase, all but 2,400 of those new jobs were in the part-time category. Despite an overall jobs growth in May, it failed to bring down the unemployment rate of 5.2% even though market consensus was pointing to a dip to 5.1%.
Since the RBA flagged the need to improve employment figures in February, unemployment has risen 0.3%, pointing to overall labour market weakness. As a result of the failure to lower the unemployment rate, market analysts have raised the likelihood of an RBA rate cut in July, keeping the AUD under pressure for the short-term.
In other important domestic news, Australian Westpac Consumer Sentiment dropped 0.6% in June, after a rise of 0.6% in May. This was a disappointment to the market as many analysts had expected the recent RBA rate cut would provide more positivity for consumers. While this news was unexpected, there was further negative news from the business sector, with the NAB business conditions survey showing quite clearly that business conditions weakened in May as well. Business conditions fell 2 points to now sit below average, led by a shaky retail sector that NAB described as being “clearly in recession”.
It wasn’t all doom and gloom though, with the NAB survey showing that despite the drop in business conditions in May, business confidence rose 7 points following the Federal election and the RBA rate cut earlier this month. While this was a positive in an otherwise bleak set of data, it remains to be seen just how long that confidence will remain high.
As a result of these lower than expected figures, the AUD performed slightly weaker against all major currencies, with more analysts beginning to take a bearish longer-term view of the Aussie dollar as pressures begin to mount domestically and worldwide and a second RBA rate cut looms large.
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Brexit heats up as Labour-led attempt to rule out a No-Deal solution fails
The weakness of the AUD/GBP performance has been offset slightly by further instability in the UK surrounding Brexit and exactly how it is going to be managed over the coming months. Now that Theresa May has officially stepped down as the Conservative Party leader, the race to replace her is really starting to kick into gear, with a secret ballot taking place overnight in the first round of party voting.
Unfortunately for the GBP, hardline Brexiteer and ardent No-Deal supporter, Boris Johnson soared above other leadership contenders in the ballot, receiving 114 votes out of a possible 300, nearly triple the votes of the nearest MP Jeremy Hunt. Three MPs failed to meet the threshold of 17 votes needed to stay in the leadership race and were eliminated, leaving seven contenders to fight it out for the opportunity to succeed Theresa May as party leader and prime minister.
In another blow for the GBP, but on a positive note for AUD performance, the UK Labour Party’s dramatic attempt to block the possibility of a no-deal Brexit was defeated by a slim majority of 309 votes to 298. The failure of the Labour-led motion to remove the spectre of a no-deal Brexit weakened the Pound as MPs on both sides of politics warned a no-deal strategy would be catastrophic for the UK.
Labour leader Jeremy Corbyn said Labour would “never accept no-deal”, while former Conservative MP Nick Boles, who flew back to the UK to vote with Labour lamented that a “No-deal Brexit on 31 October is back to being a racing certainty.” Basically it means that the UK is no closer to coming to a viable solution and the markets have responded with investors avoiding the GBP in early morning trade.
If the UK leaves Europe without an agreement in October, there will be no transition period, with the European Commission warning on Wednesday that Britain would be obligated to pay its outstanding share of the existing EU budget. Under Theresa May’s previously negotiated Brexit withdrawal agreement with EU leaders, the UK would owe the EU approximately $70 billion. Talk about bill shock!
With a lack of upcoming economic data in the United Kingdom, all eyes are on the political movements and power plays, further weakening the performance of the GBP.
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USD looking stronger as Mexican Trade War threat fades
Across the Atlantic, the USD rose slightly overnight against major currencies despite lower than expected inflation data as the market seemed to regain some optimism that the Trump Administration will come to arrangements with its trading partners. With all eyes focussed on consumer inflation indicators, data showed that the CPI slowed to 0.1%, down from 0.3% in the previous release, but not too far off market estimates. With May inflation numbers staying low, pressure is growing on the US Federal Reserve to lower interest rates in order to boost economic activity and inflation, putting a bit of pressure on USD short-term performance.
Up until this week, there were fears that the Trump Administration would slap Mexico with trade tariffs, opening up another trade war front, with the tariffs due to take effect on Monday. High-level talks and some positive Tweeting by Donald Trump helped defuse the latest crisis, strengthening the USD slightly against the AUD and GBP. In further positive news for the USD, G20 finance ministers agreed on a joint communiqué to reduce trade tensions in an effort to restore some stability to global trade. President Trump and President Xi of China will be meeting at the G20 summit in Japan later this month, and there is a belief that we could see progress in the ongoing trade dispute between the world’s two largest economies.
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