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Employment Halt Could Counter the Recovery of the AUD

Employment Halt Could Counter the Recovery of the AUD

The rise and fall of the Australian Dollar over the last several months has kept the nation on its toes. Amidst a pandemic- with fears of war looming and threats to the iron ore industry, there is a fair deal of uncertainty.

Despite the recent increase looking promising, it seems there is another spanner in the works: employment rates.


The AUD in 2022


It is no secret that 2022 so far has not been an excellent year for the AUD on the foreign exchange market. From highs of over 0.75 US cents in late October/early November 2021, it tumbled dramatically- closing out the first month of 2022 at 0.6994.


Luckily, February so far has been a lot more successful. Two-thirds into the month, and the AUD/USD exchange has not dropped below the threshold of 0.70 cents- something many feared could be possible.


Conversely, it has remained steady above the 0.71 marks, topping out at 0.791 on the 17th of the month. The gradual push back towards 0.72 looked set to continue, with financial forecasters and FOREX experts predicting good times ahead for March.


Unfortunately, new developments in the employment plans for Australia for the rest of the month may stand to undo the progress.


January Jobs in Australia


The latest data prints shared by the Australian Government show that the country does not intend to create any new jobs this month. It means that financial growth is unlikely to get much further since the economy is not introducing new salaries and earnings to the country.


A temporary halt to increasing employment could have a knock-on effect with the Reserve Bank of Australia, which is set to make moves with monetary policy surrounding inflation. Despite the unemployment rate holding steady at 4.2% for now, predictions state it is likely to fall below 4% this year. It is in the RBA’s best interest to wait and see how that progresses before committing to policy changes.


Holding off until the labour market improves means that monetary conditions can stay as supportive as possible and keep in line with inflation targets later in the year. That said, it is also likely to drag the Aussie Dollar as the Federal Open Market Committee seems likely to move first.


Positive Outlooks


Although the recovery could see a significantly slower road, the outlook is still positive long-term. Many believe that the halt in employment is merely a roadblock to slow the pace. Clearing the decline of the previous month could be more of a correction, rather than a progression. It may hold steady as investors prepare for the soon expected USD interest inflation.


If we look at spending and investing trends in Australia over the last year and the effect it had on the FOREX market, there is plenty of room for growth. Take the retail spending boost of November that helped the AUD to peak. It came after extended lockdown periods and more than a year of economic uncertainty. As 2022 progresses, it faces a similar situation.


Research shows that Australians feel confident in their personal financial situations and want to spend or invest. What holds them back is the turmoil of domestic and international trade demand and the effect on the foreign exchange. Once stability is restored, spending is poised to drive the AUD up and flood the economy with rehydration. If the investors follow suit, the Australian Dollar could be in a whole new place by the end of the year.


A Few Key Stats


  • The AUD has remained above 0.71 for 16 out of 18 days in February at the time of writing.
  • Predictions expect it is unlikely that the FOREX rate should dip below 0.71 this quarter.
  • Long-term predictions are conflicting, lying heavily on what the USD does with interest rates. Some say the AUD could close out the year at 0.70 with others expecting an increase to 0.72.
  • 51.55% of FOREX traders are holding net-long positions on the AUD, compared to 48.45% on the short.


Final Thoughts


Overall, the AUD is looking a lot more robust this month than it did in January, but it still has trials to overcome. The freeze on employment- if extended- could have a negative impact, but a short-term halt may be little more than a bump in the road.


As always, Australian FOREX investors must wait to see what the US does- and react accordingly.