Australian employment turned negative for the second month out of the past three, but the unemployment rate unexpectedly declined causing a short covering rally in the AUDUSD that took the pair comfortably above the 1.0200 in early morning European trade. Australian employment declined by -8.8K versus forecasts of 5.1K rise while the unemployment rate dropped to 5.1% versus 5.3% anticipated.
Although the drop in unemployment rate was caused by by the lowest participation rate in five years as it declined to 65%, it was nevertheless viewed positively by the market which saw the data as evidence that Australian labor markets are operating at near full capacity requiring no further easing from the RBA for the time being. At 5.1% the unemployment rate in Australia remains the envy of the G-10 universe and confirms the RBAâ€™s view that monetary policy remains â€œappropriateâ€.
However, despite the relative optimism of the monetary authorities in Sydney, the latest employment report shows a marked weakness in labor demand as Australia lost jobs in three out the past seven months. The news on the labor front dovetails with other economic indicators that have shown slowdown in activity over the past several months. The labor data would have been much worse were it not for gains in resource heavy Western Australian region. yet those gains are unlikely to continue as price of iron ore and coal has plummeted over the past few months.
The Aussie which has been under relentless selling pressure for the past three days has staged a strong rebound in Asian and European trade as the pair rose to 1.0250. If risk appetite remains positive into the European session the AUDUSD could make a run towards the 1.0300 level as the short squeeze persists for the rest of the day.