Earlier today, it was reported that Australian firms have added some 33,700 more jobs in April, better than the 22,600 market forecast. March’s employment change figure was also revised upward to 27,700 from 19,600. Still, the country’s unemployment rate worsened a little bit to 5.4% from 5.3% during the past two months. In any case, the latest increases in employment in March and April have sparked some speculation that the Reserve Bank of Australia could once again hike their interest rates. At present, the RBA’s interest rate is pegged at 4.50%, which is already the highest among the major currencies.
Today’s employment result, though, drew some mixed reactions from the market. Initially it gave the Aussie some support against the safer dollar and yen but it was not sustain its gains due to the investors’ still tentative views on the market. It, however, performed great against the problem child, I mean, problem currency – the euro.
My upbeat outlook on the AUDUSD and AUDJPY was tampered during last week’s bloodbath as both pairs managed to break their long term downtrend. Nonetheless, I remain somewhat bullish on the two since there are no apparent signs of technical reversal as of yet. Moreover, a potential rate hike of say 0.25% could only make the Aussie more attractive by giving the buyers additional 4.50% and 4.65% bonus in interest differentials alone for AUDUSD and AUDJPY, respectively. Then again a safer bet, in my opinion, would be to short the EURAUD since the pair is still on a downtrend. Shorting it would effectively give one 3.75% add on bonus in interest rate differential as well, assuming the RBA raises its rate to 4.75%. Not bad at all. But that’s just me.