AUD: Australian recession afoot?
A significant indicator suggests that despite an unexpectedly stronger Australian jobs market, there may be an Aussie recession coming.
While the unemployment rate unexpectedly fell to 3.6%, when economists anticipated it to remain at 3.7%, the Australian yield curve has inverted for the first time since 2008, a twisting of bond market yields that often indicates an incoming recession. Last week, the Reserve Bank of Australia (RBA) unexpectedly raised interest rates to 4.1%, and signalled that further tightening could still be required to tame inflation. The strength of the job report supports the RBA's case, as a tight labour market will contribute to stronger wage growth.
(Video Transcript)
The Australian dollar
The AUD is one of the enduring currencies of the session. In today's economy in Australia, the job market is stronger than thought. In the month of May, the unemployment rate unexpectedly fell to 3.6% after being anticipated to remain at 3.7%. It's not a big move, but nonetheless, it has been significant for the Australian dollar. In the session days, trade at full-time employment rebounded to 61,007, and part-time employment also rose. I'll show you what's happening with the Australian currency because there have been some really interesting moves in the last couple of days. We've seen the Australian currency rise and rise again. In fact, in the last 12 hours, we said it peaked above this previous line of resistance at 6118 against the USD. So that upward trend continues against the greenback, against New Zealand's big, strong move up on the Australian market.
AUD/CAD
It's not as high as it has been, but against other currencies, there have been some very strong moves in today's trade. We've gone about the 100-period moving average for the AUD/CAD for the first time since March this year. So a lot of moves are showing benefits for the Australian dollar. The Australian yield curve has inverted for the first time since 2008. This often indicates an incoming recession. Could that happen in the Australian economy?
Reserve Bank of Australia
Last week, the Reserve Bank of Australia (RBA) unexpectedly raised interest rates to 4.1%, which is more of a brake on economic activity. It also signaled that further tightening could still be required to tame inflation. The strength of this jobs report today suggests the obvious case for contributing to stronger wage growth. But the inverted yield curve some think I'll show that indicates a session coming in from Australia.
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