Australia’s economic improvement continues as the country has had great success in combating the COVID-19 virus’ spread. Just like New Zealand but also like many Asian countries, Australia took bold measures against the pandemic, and those measures paid off.
Helped by the warm season, Australia registered very few infections and a low death rate. Having said that, the economic bounce from the coronavirus-led recession is not a surprise to anyone.
Unemployment Rate Drops, Labor Participation Rate Rises
The jobs report, covering the last month of 2020, showed a solid labor market on all fronts. Australia added another 50k job in December, and the unemployment rate declined further to 6.6% from 6.8% previously. The market expected a decline in the unemployment rate, but only to 6.7%, so the actual release took many by surprise.
Labor force participation continues to rise. It remains above 70%, even increasing slightly when compared to pre-pandemic levels. Coming back to the unemployment rate, adjusted with the new release, it is up only 1.5% when compared to the level registered a year ago.
Naturally, such a solid job report could not be ignored by the currency market. The Australian Dollar (AUD), one of the best performers in 2020, extended its gains across the board. The Aussie dollar gained against the American one and remains close to the recent highs. It even gained against the Euro, as the EURAUD cross pair reflects the troubles the European countries face with containing the virus. The cross dropped in the last months more than a thousand pips, from 1.68 to 1.56 and counting.
It is said that a currency should reflect an economy’s strengths and weaknesses. Sometimes it lags macroeconomic events; sometimes, it moves in anticipation – but on average should reflect the inflows and outflows as generated by economic growth.
Having said that, the Australian economy enjoys favorable conditions in the period ahead. First, the warm weather helps the country better contain the spread of the virus. Second, as the vaccines are rolled out all over the world, by the time the summer ends in Australia, there would be enough in the production, so the country starts inoculating its population. Third, higher commodity prices eased the pressure from the Reserve Bank of Australia to act, as they offset the strength in the Australian dollar.
In conclusion, further economic recovery is possible in the months ahead, so the Aussie dollar should remain bid on every dip.