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11/09/24
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Australia’s Economic Outlook: Impact of High Interest Rates and Labor Market Shifts
During the Asian trading session on Wednesday, the Reserve Bank of Australia’s Assistant Governor for Economic Affairs discussed the impact of high interest rates on the economy. She noted that these elevated rates are contributing to a slowdown in demand, which aligns with expectations of a mild economic downturn.
Employment trends are showing signs of change. While the labor market remains relatively tight, there has been a shift toward better balance since late 2022. Easing labor market conditions are similar to patterns observed during past mild downturns, with some reductions in labor demand anticipated, particularly through a decrease in average working hours. Although employment is expected to continue rising, the pace will be slower than the growth of the population.
Furthermore, there is room for job vacancies to decrease without causing a significant increase in unemployment rates. Notably, the participation rate has remained unexpectedly strong, even when compared to peer economies. However, the economic outlook remains uncertain, and there is acknowledgment that current forecasts may prove incorrect. Signs are emerging that the easing labor market conditions are beginning to influence wage growth, which is likely past its peak and expected to decelerate further.
In response to these developments, the Australian dollar against the US dollar has shown minimal movement, maintaining a range in the mid-0.6600s. Traders are currently adopting a cautious approach, holding off on making significant directional bets as they await the release of the upcoming US Consumer Price Index report. The market’s reaction is likely to be influenced by this key economic data, potentially leading to shifts in the currency pair’s trajectory.
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