Sep 14, 2023

The United States reported that its inflation rate remained stubbornly high on Wednesday, while Australian employment figures were released ahead of Thursday’s trading session.

AUDUSD Daily Chart

AUDUSD: Daily Chart

The exchange rate of the Australian dollar (AUD) is currently trading at 0.6420 against the US dollar (USD), and is poised to test the 0.6458 resistance level in search of further gains.

Higher oil prices are thought to have contributed to the latest inflation reading for the United States. This could reignite fears of inflation and economic downturn. Inflation rose for the first time since June 2022, to 3.7% in August.

Price growth has declined from the decade-high inflation rates of last summer, when the rate peaked at 9.1% in June. However, the latest increase in inflation means that the US economy is still far from the Federal Reserve’s target rate of 2%, and will likely lead officials to consider another rate hike this year.

The main cause of the persistent inflation reading was commodities, including gas and oil, which increased by 10.5% over the last month after Russia and Saudi Arabia continued to make aggressive cuts in supply. Core inflation, the price of goods and services excluding the energy and food industries, decreased in August to 4.3%, down from 4.7% in July. However, it still remains well above the Federal Reserve’s target rate of 2%.

Some analysts are concerned that Australia’s labour market has reached its peak, as the unemployment rate hovers around historic lows, leaving little room for improvement.

Over the past year, Australia’s job reports have exceeded expectations on six occasions. However, the upside surprises have been significant. In May, Australia’s economy added 76,500 jobs, more than five times the expected increase. In March, it added 60,000 jobs, triple the initial estimate.

The Reserve Bank of Australia (RBA) closely monitors employment figures, as a higher number would continue to raise concerns about further interest rate increases. The RBA has already raised interest rates three times this year in an effort to combat inflation, and a strong jobs report could prompt the central bank to raise rates again in the near future.

RBA kept the cash rate at 4.1%, highest since 2012.

“Inflation in Australia has passed its peak, and the monthly CPI indicator for July showed a further decline,” outgoing governor Philip Lowe said in an accompanying statement. “But inflation is still too high and will remain so for some time yet.”

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