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Unemployment data offers sobering insight into future hardships

AUD - Australian Dollar

The Australian dollar struggled through trade on Thursday marking fresh weekly lows at 0.6402 in the wake of sobering employment data. The unemployment rate jumped to 6.2% in April as some 600,000 Australians lost their jobs as a direct result of COVID-19 lockdowns. At face value the numbers appear largely on or ahead of expectations with conservative estimates suggesting the unemployment rate would rise to 8.3%, but a deeper analysis pointed to some worrying signs that may hamper prospects for a quick rebound in economic activity. A sharp drop in the participation rate was all that saved the unemployment rate from jumping higher. Only 63.5% of the eligible working community were actively employed or looking for work, a 3% drop on March and the lowest read in 16 years. If the participation rate had remained in line with last month then unemployment would have shot above 9%. Furthermore, if we group the unemployed and underemployed together then almost 20% of the workforce are either out of work or unable to work as much as they would like. Worryingly the data released yesterday doesn’t offer a complete assessment of the true economic impact as it only reports on the first two weeks of April opening the door for greater labour market uncertainty and more job losses. With unemployment tipped to reach 10% in June, hopes of a swift bounce back in economic activity led by consumer spending are fading.

Having touched lows at 0.6402, the AUD clawed its way back above 0.6450 throughout overnight trade. The dollar has marked a series of lower lows and lower highs this week in an environment not necessarily plagued by the same risk drivers as previous weeks, a sign the AUD upturn through April may be fading. As attentions remain squarely affixed to the evolution of reduced lockdown measures and the size and impact of any second wave of infections, we are watching key supports at 0.6380 and 0.62 as markers and possible signals for broader moves.

Key Movers

The US dollar advanced against a basket of currencies through trade on Thursday with the DXY index pushing through 100.50 and marking a fresh 3 week high. Investors largely overlooked alarmingly high jobless claims pushing the worlds base currency higher on hopes of a bounce back in economic activity as parts of the country open up. Fears of a second wave of infections have capped gains but investors appear optimistic the recent slew of devastating macroeconomic indicators will improve once Americans go back to work. The yen and the Swiss franc offered little, suggesting the move wasn’t one driven by risk-off moves and perhaps leaves the upturn vulnerable to a correction, as investor focus inevitably turns to broader economic performance. Over 36 million Americans have filed for unemployment benefits since lockdown measures began in March as the weekly jobless claims report becomes an all-important measure of broader economic health. With sections of the economy re-opening in the weeks ahead analysts will be keenly attuned to future data points for any sign of improvement across employment numbers. There is a growing fear that temporary job losses may become permanent if the economy fails to respond quickly and markets will be looking for signals jobs are being reinstated quickly if the dollar is to maintain long run values.

The Great British pound fell to 5-week lows, slipping below 1.22 after data showed the economy contracted by a record 5.8% in March. The combination of coronavirus and Brexit woes are weighing on the pound with investors reluctant to extend long term GBP positions. The UK surpassed Italy as this week with the most COVID-19 casualties in Europe and appears some way off from meaningfully reducing social distancing restrictions. With Brexit risks still looming and broader economic pain expected, the GBP will struggle on moves above 1.23 through the short term.

Expected Ranges

AUD/USD: 0.6380 - 0.6530 ▼

AUD/EUR: 0.5920 - 0.6050 ▲

GBP/AUD: 1.8820 - 1.9180 ▼

AUD/NZD: 1.0680 - 1.0820 ▼

AUD/CAD: 0.9020 0.9130 ▼