AUD/JPY slumps below 98.00 as Australian Unemployment Rate climbs to four-year high of 4.5%

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The AUD/JPY cross falls to near 97.70 during the early Asian session on Thursday. The Australian Dollar (AUD) weakens against the Japanese Yen (JPY) after the release of Australia’s employment report for September. The Bank of Japan (BoJ) board member Naoki Tamura is set to speak later on Thursday.

AUD/JPY tumbles to around 97.70 in Thursday’s early Asian session, down 0.43% on the day.
Australia's Unemployment Rate hit a four-year high in September.
The prospect that Japan's political uncertainty may delay the BoJ rate hike might cap the downside for the cross.

Data released by the Australian Bureau of Statistics (ABS) on Thursday showed that the Unemployment Rate in Australia jumped to 4.5% in September from 4.3% in August (revised from 4.2%), above the market consensus of 4.3%. This figure registered the highest seasonally adjusted rate recorded since November 2021.

Meanwhile, the Australian Employment Change came in at 14.9K in September versus -11.8K prior (revised from -5.4K). This figure came in worse than the expectation of 17K.

The Aussie faces some selling pressure in an immediate reaction to the downbeat employment data. The report signaled the labor market is loosening and added to the case for the Reserve Bank of Australia (RBA) to resume lowering interest rates as soon as next month.

RBA Governor Michele Bullock said on Thursday that a pickup in consumer spending and higher readings on some parts of inflation had given policymakers pause to consider whether further interest rate cuts were needed.

On the other hand, political uncertainty in Japan could put pressure on the Bank of Japan (BoJ) to delay interest rate hikes. This, in turn, could weigh on the JPY and cap the downside for the cross. The Liberal Democratic Party (LDP)–Komeito coalition came to an abrupt end last week. The development means the newly elected LDP leader, Sanae Takaichi, would need support from other parties to confirm her as Japan’s first female Prime Minister and for her key policies.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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