Australian Labour Market and China Trade Risks

Robust Employment Growth in Australia

The latest labour market report from Australia reveals a positive trend in employment growth. In May, the Australian economy added 39,700 jobs, consistent with the monthly average of 40,700 job gains for the year. This marks an improvement from last year's average of 31,900 jobs per month. May's employment growth exceeded expectations for the second consecutive month, leading to a slight drop in the unemployment rate to 4.0%.

Implications for RBA's Monetary Policy

The employment data aligns closely with the Reserve Bank of Australia's (RBA) economic projections, suggesting no immediate need to alter monetary policy. However, this robust job growth has led to increased uncertainty among market participants about the likelihood of a rate cut by the RBA this year. Currently, the probability of a rate cut at the RBA's December meeting is viewed as a near 50:50 chance.

Australian Dollar's Performance

The Australian dollar has strengthened in recent months, supported by the hawkish shift in RBA rate cut expectations and a general rebound in high beta G10 currencies driven by stronger global growth early in the year. (Sourced from Hiring Lab & Australian Bureau of Stastistics)

Potential Trade Risks with China

One potential downside for the Australian dollar is the risk of escalating trade tensions between China and other major economies, particularly in the lead-up to the US election in November. Such tensions could negatively impact investor sentiment towards the Australian and Asian currencies.

AUDUSD

The European Commission's recent announcement of a baseline 21% tariff on imported electric vehicles from China, in addition to the existing 10% tariff on cars, exemplifies these trade risks. These tariffs, effective from July 4th, could prompt China to retaliate with similar measures against EU imports. This development is being closely monitored by market participants, as it could significantly affect trade dynamics and investor confidence.

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