AUD: Strong labour data points to RBA normalisation

Fundamental bias: Mildly bullish

The Australian dollar was hit by the hawkish Fed this week but domestically, the very strong employment data (May unemployment rate fell to 5.1% vs consensus 5.5%) this week is set to make the 7 July RBA meeting very interesting. The RBA minutes did not reveal anything new but among the four possible options presented in terms of the future of the QE programme, our economists favour the one of scaling back the amount purchased or spreading the purchases over a longer period. With the RBA moving towards the first step of policy normalisation (albeit admittedly not being as hawkish as the Bank of Canada or the Norges Bank), this should give some support to AUD over the summer.


Data-wise, we have May retail sales (Monday) and June PMIs (Wednesday), but neither should impact AUD too much. In terms of domestic data, the unemployment figures this week were crucial. In terms of external factors, the wider direction of the US dollar will be key next week. While the downside risks to AUD/USD remain for next week, the pace of the decline should be more limited vs the price action observed this week.