The Australian job data for September 2020 was just released several hours ago. It showed a mixed picture, with unemployment rising less than expected, and the number of employed people falling, but less than expected too.
The market’s reaction tells much about the data’s impact – the AUD fell across the board. The two main AUD currency pairs of interest, the AUDUSD, and EURAUD, reacted the most – the AUDUSD slide towards 0.70 resumed, while the EURAUD regained the 1.65 level as the E.U. Summit begins today.
Higher Unemployment Rate in Australia
The unemployment rate continues to rise in Australia. Projected to reach 7%, it came out a tad better than expectations, at 6.9%, but still higher than the previous 6.8% release. On top of that, some other important job metrics showed disappointing developments in the Australian job market.
First, the participation rate decreased to 64.8%. Employment also decreased to 12.5719 million people. Second, the employment to population ratio decreased to 60.3% while the underemployment rate increased to 11.4%.
All these point to a weak labor market and indicate that the troubles for the Australian economy are far from being solved. Yet, the Australian economy is one that coped relatively well with the COVID-19 pandemic. Several factors are worth mentioning in this sense.
To start with, Australia is in close proximity to countries that handled the pandemic quite effectively. For example, China did not have one case for months, focusing not on finding a cure for the disease but on eradicating it, eliminating it. The same is valid in Singapore or Thailand. As such, their economies recovered faster, and the Australian exports were not affected that much as exports from Western world countries.
To continue, the price of commodities performed pretty well during the pandemic. Raw materials and precious metals increased in price, sustaining the AUD on every attempt to move lower. As such, the AUD’s strength during the pandemic does not necessarily reflect the strength of the Australian economy, but a combination of external factors that lead to its appreciation.
Moving forward, Australia has a competitive advantage against the Western world – summer is coming down there.
Despite no evidence that the virus advances more during winter, and less during summer, Europe faces a much bigger second wave of infections now that winter is closing. As such, lockdowns in Spain, France, or the United Kingdom will affect the economic performance moving forward.
The more Europe shuts down again, the more other currencies will outperform the Euro.