The Australian Dollar is broadly higher this morning as the country’s latest jobs report came in much higher than analyst expectations and showed that 71,500 jobs were created for the month. Also supportive for the currency was the accompanying drop in the national Unemployment Rate, which came in matching analyst expectations at 5.4%. The data led to a massive upside surge in both the AUD/USD (which hit highs near 1.0380), and the AUD/JPY (which hit resistance levels in the 0.9960 region).
The details inside the numbers were strong as well, with both part-time and full-time employment numbers, and this bodes well for the long term prospects for the strength of the economy. In addition to this, there is a decreased likelihood that the RBA will elect to cut interest rates if numbers like this continue to be seen. As long as this is the case, long term traders will continue to buy the Aussie Dollar well before we approach parity against the US Dollar, and the yearly uptrend against the JPY will continue to see resistance barriers removed. This is largely because the AUD is still the highest yielding currency amongst the majors, so without any major shocks to the economy carry trades will be viable for the first half of the year.
Basing Trades on Interest Rate Expectations going forward, the fate of the Aussie will largely rest on market expectations for future interest rate moves. Traditionally, interest rate data is most important when making these assessments and now that we have confirmation that the labour market is strong, this tendency will remain true in this case. The RBA’s target inflation rate is in the 2-3% range, so if we seen price data (either on the consumer or producer end) approach the upper side of this range, we will start to see interest rate expectations removed from the market.
A scenario like this would be bullish for the AUD currency and keep valuations supported for the remainder of the year. The primary reasons for this comes from the fact that interest rate policy in most other sections of the world remain at accommodative (very low) levels, so this lack of balance will favor the Aussie as long as intere