Momentum behind the Australian dollar seems to have evaporated once more as move into the second half of the week, with the latest unemployment figures potentially set to drive further volatility. Indeed, 29,500 more people filed for unemployment after losing their jobs in September. The release came as a surprise, particularly following the positive shift in august which saw unemployment drop by as much as 0.7%. The hope that as the restrictive measures were eased, business confidence might show a sharp recovery which in turn could have meant added job security within the economy. Evidently this chain reaction did not come to fruition quickly enough, forcing businesses to drop their headcount just to keep their heads above water. Businesses within the travel and restauration sectors are said to be the most effected by the measures.
The government seem to be ahead of the trend however, having put forward a substantial support package at the start of the month, including a $4bn wage subside to encourage businesses to employ young workers. It will be interesting to see how much of an impact this has on the subsequent releases as the year comes to an end. There has been plenty of criticism from trade unions, who have called subsidies around childcare, particularly given the struggles schools across the country are beginning to show in their attempts in containing the spread of the virus.
Will AUDGBP Drive Towards 0.60 Before Then of This Month?
Governor of the Reserve bank of Australia Phil Lowe cautious tone so far this month might not be helping the Australian dollar show a return of form either. Despite being confident that the economy’s recovery is underway, the speed and course the country is on remains unclear.
Lowe once again highlighted household income as an area of concern, something that does not look likely to improve in the immediate future if this week’s unemployment figures are anything to go by. The RBA are conscious that as the government’s support programs begin to narrow onto more “targeted” sectors, further fallout is to be expected which naturally could result in contracting household spending. Should this spread into the festive period at the end of the year we could see heavy contractions within the economy.
As a result, next Tuesday’s Westpac release could hold added weight with the markets. The report tracks lending conditions across the economy. Should we see another surprising contraction here, added volatility could be expected.
One of the RBA’s policy makers Kent is also due to speak on Monday so it will be interesting to see if he alludes to another shift in stance from the Reserve Bank in light of the potential of further contractions in business confidence and consumer spending.
Trading Partners to Dictate AUD Exchange Rate From the Start of Next Week
Those hoping to purchase foreign currency with Australian dollars might be hoping next weeks data from Australia’s main trading partners China and Japan to help stimulate AUD’s value and therefore AUDGBP on this international stage.
Indeed, following Sunday night’s raft of data from Japan, the People’s bank of China is due to make their latest interest rate decision. At a time when Chinese political relations remain fragile on the international stage, business confidence might be even more closely linked to lending conditions within the country. Indications of added support here might bode well for long term trading relationships with Australia and could help drive the AUD’s value as a result.
Importantly, China’s key Gross Domestic Product release could also be worth monitoring as a result. Investors might be looking for clear indications of growth within China before further supporting the Australian dollar on the international stage. Commodity based currencies like the Australian dollar have been showing signs of growth when global sentiment and outlook have improved.
It is worth noting the AUD has managed to make reasonable gains against both the USD and the EUR since last week, reflecting this shift in sentiment. Perhaps another positive move in retails sales figures for China early next week will also help move the AUD to new heights.
For AUDGBP to breach the 0.60 mark once again, one would expect the need for substantial updates from the ongoing EU summit at the end of this week. Pushbacks from EU leaders which could prevent the progression on the UK reaching a deal with the bloc this year might drive the pound into a negative spiral.
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