- AUD an outperformer after jobs surprise, unemployment falls.

- Gov pledges no debt reforms without a pre-crisis jobless rate.

- As U.S. spending bill also seen in pipeline, averting shutdown.

- AUD breaks above key Fib level, could target Jan 2018 highs.

Image © Desiree Caplas, Adobe Stock

GBP/AUD spot rate at time of publication: 1.7792Bank transfer rate (indicative guide): 1.7158-1.7282FX specialist providers (indicative guide): 1.7513-1.7656More information on FX specialist rates hereThe Australian Dollar was a leader among major currencies on Thursday after a better-than-expected November jobs report and upbeat government fiscal update helped it to break above a key resistance barrier on the charts, a move which could now put January 2018 highs in the pipeline

Australia's Dollar trailed only the Norwegian Krone on Thursday and even then AUD/NOK's decline was barely observable, with the antipodean unit riding high after the Australian Bureau of Statistics said some 90k jobs were either created or recovered from the coronavirus calamity in November.

The Aussie economy benefited from another blockbuster gain in jobs last month, which coincided with the reopening of one of the country's largest cities following a second 'lockdown,' with 90k new positions added on top of the 180.4k seen in October. Consensus had looked for only a 40.9k jobs increase.

Job gains rather than changes in participation were the main driver behind the surprise decline in Australia's unemployment rate, which fell from 7% to 6.8% when economists had anticipated that it would be left unchanged last month. The jobless rate is still some way above December 2019's 5.1% and its February 2019 cycle low of 4.9%.

"AUD/USD hit the highest level since June 2018 near 0.7585 following an upbeat labour force report," says Carol Kong, a strategist at Commonwealth Bank of Australia. "Federal government’s Mid‑Year Economic and Fiscal Outlook (MYEFO) indicated an upgrade to 2020/21 real GDP and budget outlooks. The MYEFO is consistent with the ongoing Australian economic recovery."

Above: Australian Dollar performance against major currencies on Thursday (left) and in month to Thursday (right).

Separately, Australia's Treasury said in its mid-year economic and fiscal update on Thursday that its economy could now escape contraction for the 2020 year with an anticipated 0.75% increase, when before it had been seen on course for an annualised decline of -1.5%.

Better consumer spending and dwelling investment were credited with the upgraded outlook, although this was in no small part thanks to an innovative scheme launched by Prime Minister Scott Morrison and Treasurer Josh Frydenburg back in June.

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GBP/AUD Forecasts Q2 2023 Period: Q2 2023 Onwards Details: Consensus institutional forecast targets + max & min targets. Contributors: Citi, Barclays, Morgan Stanley & more Provider: Global Reach Type: Free Download Please Access Here

{wbamp-hide end}{wbamp-show start}{wbamp-show end}The government offered in June to provide grants of up to A$25k to couples and singles who were either building a primary residence to inhabit or were looking to renovate their existing home, with the only condition being that works were carried out between June 04 and December 31 this year.

I've moved houses 3 times now in Sydney and I could swear there's a construction worker with a jack hammer that's following me around.

— Assad Tannous (@AsennaWealth) September 14, 2020"There has been some modest upgrades but overall the forecasts still remain quite conservative. The unemployment rate is still expected to peak at 7¼% in Q1 21. In contrast we expect that the unemployment rate has already peaked and will trend lower over the next two years due to the improvements in the economy and also much lower net overseas migration depressing the supply of labour," says Belinda Allen, an economist at CBA.

Above: Pound-to-Australian Dollar rate shown at weekly intervals.

Treasurer Frydenburg also said on Thursday that Australia's tax take is now expected to be larger than was envisaged in June and its budget deficit lower over the coming years, although the country is still expected to see its debt-to-GDP ratio reach a record high in excess of 50% over the coming years.

But despite the still-elevated deficit and anticipated further surge ahead, the Treasury committed Thursday to not begin debt reduction unless and until Australia's unemployment rate returns to what are almost pre-coronavirus levels between 5.2% and 5.5%. This isn't expected to happen until 2022.

A lesser contraction and lower-than-anticipated deficits are a boon for the Australian Dollar's image in the eyes of investors, who often view the commodity currency as an ideal vehicle for gaining exposure to recovering global growth momentum, although its attractiveness is burnished further by a national balance sheet that is in comparatively good health given debt-to-GDP ratios of 100% or more in many other major industrialised economies.

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{wbamp-hide end}{wbamp-show start}{wbamp-show end}"In terms of its response to the pandemic, Australia has clearly coped better than the US and Europe," says Jane Foley, a senior FX strategist at Rabobank. "In an environment marked by expectations that the Fed will continue to use its balance sheet to support the USD economy and depress the USD, AUD/USD looks set to remain well supported. However, bulls should beware of the potential pitfalls facing the AUD. We suspect upside potential will be tempered."

Foley and the Rabobank team forecast the Aussie will trade only a fraction above Thursday's levels in 12 months time and that interim upside for the antipodean currency will be limited by risks to investor sentiment as well as the economy stemming from a spat with China.

China's coercive and somewhat Trumpian use of trade tariffs, blacklists and other measures against Australia and its Prime Minister - believed to be the result of his calls for transparency and accountability relating to the coronavirus - have struggled to be seen or heard by investors thus far but could still escalate.

Above: AUD/USD rate shown at weekly intervals with Fibonacci retracements of 2018 downtrend.

The world's second largest economy was again reported this week to have placed Australian coal exports on a blacklist, although it's not actually admitted to doing so. Tensions between the two trade partners are a risk to investor appetite for the Australian Dollar but are seen as unlikely to threaten the economy unless China attempts to wean itself off Australian iron ore.

Iron ore is seen as an unlikely target for Chinese authorities given Australia's large share of the global market as well as its cleaner quality and lesser carbon footprint. China would face greater problems with pollution, more difficulty meeting emissions targets and its steel producers as well as other industrial firms would face higher prices and lower profit margins in response, hence why few economists expect it to make any moves against Australia's iron ore sector.

Iron ore is Australia's largest export and China the largest buyer of it so if the industry did come under fire it would be significant for the Aussie. However, and in the interim, the antipodean unit is being lifted by the Australian economic story, global recovery and upbeat investor sentiment as well as a widespread U.S. Dollar decline that has boosted commodity prices. It also benefits from a bullish backdrop on the charts, which some analysts see offering scope for a return to January 2018 highs.

"AUD/USD continues its advance and nears the 38.2% Fibonacci retracement of the 2011-2020 descent at .7639. ," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank. "We would allow for some near term profit-taking to take place around this level. It is the breakpoint longer term for the 2018 peak at .8135. The cross remains immediately bid while it stays above the two month uptrend line at .7496."

Above: AUD/USD rate shown at monthly intervals with Fibonacci retracements of 2011 downtrend, key moving-averages.