The latest Australian employment data beat market expectations, but falling iron ore prices have weighed on the Australian dollar.
The Australian dollar is seen as volatile in trading this Thursday (17/February). The AUD/USD exchange rate traded in the range 0.7149-0.7215, while the AUD/NZD fell 0.2 percent to the 1.0740s range. The latest Australian employment data beat market expectations, but falling iron ore prices have weighed on the Aussie dollar.
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| AUD/USD Daily chart via TradingView |
The Australian Bureau of Statistics (ABS) reported that the economy added 12.9k jobs in January 2022, dismissing consensus forecasts of 15.0k job losses in the period. Australia's unemployment rate also held on to a record low of a decade at 4.2 per cent, while the labor force participation rate increased from 66.1 per cent to 66.2 per cent.
The data set shows that Omicron's impact on the Australian economy is not as bad as previously thought. Market expectations for an RBA rate hike were well maintained. Futures markets are now pricing in an RBA rate hike of more than 100 basis points as of December 2022.
Expectations of high interest rates supported the Australian dollar, but have not been able to trigger a significant acceleration of the bullish rally. The reason is, Australian central bank officials are still reluctant to discuss the topic of interest rates.
The RBA meeting earlier this month signaled the central bank's readiness to tolerate an inflation rate slightly above the 2-3 percent target for some time, as inflation acceleration was deemed not to be sustainable. Australia's current core inflation rate is only 2.6 percent, so it is still far from the threshold that the RBA cannot tolerate. Markets will then be watching the release of Australian inflation data next week to assess the prospects for another "RBA rate hike".
Meanwhile, iron ore prices fell for four straight days. The Chinese government's action to tighten supervision over steel producers has dampened the rally in commodity prices, thus affecting Australia. Iron ore is Australia's main export commodity, while the majority of Australia's iron ore is exported to China.
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