Commerzbank’s Volkmar Baur writes that the Australian Dollar is supported by resilient labor market data, with unemployment steady at 4.3% and 18,000 jobs added in March. However, sentiment indicators have weakened, inflation expectations have risen, and refinery disruptions raise supply risks. Baur cautions that unresolved Iran conflict risks keep downside risks for the Aussie elevated despite better Chinese data.

Jobs strength underpins Australian Dollar

"The Australian dollar remains supported this morning and was able to gain further ground following the release of labor market data. The unemployment rate remained unchanged at 4.3%, although this may have been for the “wrong” reason, as the labor force participation rate fell by 0.1 percentage points. Nevertheless, the Australian labor market added around 18,000 new jobs again in March, which is above the average for the previous year."

"The labor market thus defied weak sentiment indicators that had pointed to a slowdown earlier in the week. Partly due to the Iran conflict, the sub-index for expected unemployment in the consumer survey rose to its highest level since the pandemic, while the employment component in the Australia Industry Group’s business survey plummeted to its lowest level since 2020."

"In addition to the Iran conflict, the RBA’s two interest rate hikes in recent months have certainly weighed on sentiment. However, a look at this morning’s consumer inflation expectations - which rose further from 5.2% to 5.9% in April - also offers no sign of relief."

"As mentioned, however, the Australian dollar does not seem to be taking much notice of these risks this morning. In addition to the labor market, the somewhat better economic data from China - the largest buyer of Australian exports - is certainly helping, at least on the surface. However, as long as the Iran conflict remains unresolved, the risks of setbacks for the Aussie remain high."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)