The AUDGBP exchange rate saw new lows for the year despite a surge higher in Australian employment levels. A gain of 115,200 net new jobs in May, was well above forecasts for a 30,000 gain.
The AUD to GBP rate was trading at 0.5415 on Thursday after breaching the 0.5422 yearly lows.
Aussie employment will test RBA resolve
Australian job numbers flew past market expectations in May as unemployment fell to pre-pandemic lows. The results are a surprise that will test policy makers’ commitment to keeping interest rates at historic lows for another two years or more.
The unemployment rate dropped to 5.1%, from 5.5% in April, which is a quick recovery from a high of 7.5% last July when lockdowns pushed the economy into a recession.
The latest figures will be welcomed by the Reserve Bank of Australia (RBA), but will also challenge the bank’s belief that the economy will take years to see a strong labour market.
The RBA has sat on its hands as the Canadian, New Zealand, and US central banks move towards a tighter monetary policy.
“In light of the recent shift in rhetoric overseas the RBA appears incredibly dovish, particularly given the relative strength of the economy,” said the Commonwealth Bank.
The RBA had said there was no intention to raise the 0.1% cash rate until inflation was back in its 2-3% target range and that was unlikely until 2024. But the May jobs data saw unemployment already down at 5.1%, when the RBA had not expected it to hit 5% until the end of the year. The bank’s governor had said it could take a jobless rate of 4% or lower to push annual wage growth above 3%.
UK inflation powers sterling
Sterling has been rising against the Aussie dollar after inflation figures this week saw the UK inflation rate jump to 2.5% from 2%.
Higher oi prices and clothing contributed to the rise in prices and the Bank of England may find itself on a path to a more hawkish approach to monetary policy. The US Federal Reserve already brought their expectations for rate rises forward on Wednesday as the global economies open up and return to strength.
The pound is seeing strength despite the delay of the full economic reopening for another month. MPs voted through Boris Johnson’s plan to stall the so-called ‘freedom day’ until the 19th of July in the UK. But rising virus cases are seeing experts call for further restrictions in the country.
In Australia, Melbourne has seen an easing of virus restrictions after the previous lockdown was introduced for two weeks. South Australia will also start re-introducing international students, after a quarantine hub was approved.
The AUDGBP will look to find support at this level and hope that it can be the low for the year.