The Australian dollar is considerably lower on Thursday. In the European session, AUD/USD is trading at 0.6671, down 1.02%.

Employment data shines

Australia’s tight labor market got even tighter in October. Total employment jumped by 32,200, up from just 900 in September. The numbers were especially encouraging as full-time employment jumped by 47,100, up from 10,900 prior. The unemployment rate of 3.5%, which was already running at a 50-low, inched lower to 3.4%.

The excellent numbers are unlikely to change the Reserve Bank of Australia’s rate policy. The RBA has eased the pace of rate hikes considerably, with two straight increases of a modest 0.25%. The markets have priced in another 0.25% hike at the December 6^th meeting, which would bring the cash rate to 3.10%. With rates expected to peak in early 2023 around 3.5% or 3.6%, the end appears in sight for the current rate-tightening cycle.

The robust labour market has put upward pressure on wages, which burst higher on Wednesday with a gain of 3.1% YoY in the third quarter, its strongest quarterly gain since 2013. The Reserve Bank of Australia will be wary of a spectre of a wage-price spiral if wages continue to accelerate, which would greatly complicate efforts to curb inflation.

US retail sales for October pointed to consumer resilience, despite high interest rates and stubbornly sticky inflation. The headline and core releases both came in at 1.3%, above expectations and a strong rebound from the September data (0.0% headline, 0.1% core). This indicates that the US economy can handle additional rate hikes, with the Fed expected to raise rates to 5.0% or slightly higher. With the benchmark rate sitting at 4.0%, investors would do well to keep in mind that there is still some life left in the current rate-tightening cycle.

AUD/USD Technical

• 0.6603 and 0.6490 are providing support
• There is resistance at 0.6750 and 0.6821

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