Australian Dollar: RBA tone may turn hawkish – Commerzbank

Commerzbank’s Volkmar Baur highlights a strong Australian labor market, with 76,000 jobs added and participation back near historic highs, prompting markets to raise the implied probability of an RBA hike to 30%. Despite complications from the Iran conflict and upcoming inflation and housing data, he still expects no move in August, but sees scope for a more hawkish communication that could support the Australian Dollar.

Robust jobs complicate RBA outlook

"After Australian economic data had been somewhat disappointing in recent weeks, the labor market delivered a positive surprise this morning. With 76,000 new jobs created in June, the number of new jobs was the highest it has been in over a year."

"Although the unemployment rate rose slightly from 4.36% to 4.43%, this was only because the labor force participation rate increased by 0.3 percentage points to 67%, bringing it back close to the historic highs seen about 18 months ago."

"This should make the RBA meeting in about three weeks a bit more interesting again. The market also adjusted its expectations immediately this morning and now sees a 30% chance of another rate hike, whereas before the jobs report that figure had been only 20%."

"Certainly, however, next week’s inflation data and the real estate market data at the end of the month will once again take center stage in the market’s focus. Before the conflict in Iran flared up again, we had been fairly certain that the RBA would not take any further interest rate actions."

"In the meantime, the situation has become somewhat more complicated. All in all, we still expect the RBA to leave interest rates unchanged in August. However, the tone of its communication could once again take a hawkish turn and provide support for the AUD."