AUD Surges as Labor Market Beats Expectations

Key Moments

Labor Market Strength Drives AUD/USD Break Above 0.6800

The Australian Dollar is outperforming in foreign exchange trading, with AUD/USD pushing past the 0.6800 mark following a stronger-than-expected December labor market report, according to BBH FX analysts.

The move took the pair above what analysts described as a key psychological resistance level, reinforcing the positive momentum behind the currency in the wake of the latest jobs figures.

December Jobs Data Beats Expectations

BBH FX analysts highlighted that Australia’s December employment report significantly outpaced market forecasts. Total employment increased by 65.2k, well above the consensus estimate of 27k and contrasting with November’s decline of -28.7k.

The breakdown of the data pointed to broad-based gains. Full-time employment rose by 54.8k, which partly unwound November’s losses, while part-time employment expanded by 10.4k after an increase of 36.6k in November.

At the same time, the unemployment rate fell by 0.2 percentage points to 4.1%, compared with expectations of 4.3%. Analysts noted that this reading stands below the Reserve Bank of Australia’s (RBA) year-end projection of 4.4%.

Additional indicators also signaled firmer labor conditions. The participation rate edged up by 0.1 percentage points to 66.7%, and hours worked increased by 0.4% month-on-month, pointing to what BBH described as a modest tightening in the labor market.

RBA Policy Expectations Shift Toward February Hike

The stronger labor market data has led to a notable repricing of interest rate expectations. BBH FX analysts reported that market bets on a 25 basis point hike by the RBA to 3.85% at the upcoming February 3 policy meeting have more than doubled to 60%.

Looking ahead, analysts pointed to the upcoming December CPI report as a crucial input for the RBA’s decision. They noted that if the trimmed mean inflation measure comes in above the central bank’s 3.2% year-on-year projection, it “could seal the deal for a February rate increase and turbocharge AUD.”

Analyst Commentary on AUD Performance

BBH FX analysts summarized the market reaction by stating: “AUD is outperforming, while AUD/USD broke above psychological resistance at 0.6800. Australia’s December jobs report was strong. The economy added more jobs than expected 65.2k (consensus: 27k) vs. -28.7k in November. Full-time employment surged 54.8k, partly reversing November’s loss, while part-time employment increased 10.4k after rising 36.6k in November.”

They further noted: “The unemployment rate unexpectedly dropped 0.2pts to 4.1% (consensus: 4.3%), which is well below the RBA’s year-end projection of 4.4%. In parallel, the tick up in the participation rate (0.1pts to 66.7%) and the rise in hours worked (0.4% m/m) point to a modest tightening in labor market conditions.”

On the policy outlook and its implications for the currency, BBH FX analysts added: “Bets for a 25bps RBA rate hike to 3.85% at the upcoming February 3 meeting more than doubled to 60%. If next week’s December CPI data shows trimmed mean inflation above the RBA’s 3.2% y/y projection, that could seal the deal for a February rate increase and turbocharge AUD.”