06:59 AM EDT, 08/15/2024 (MT Newswires) -- The Australian dollar (AUD) is the biggest mover amongst G10 currencies early Thursday following the jobs data released earlier, said MUFG.

The data revealed a 58,200 increase in jobs, nearly three times more than the 20,000 consensus with all of the jobs (60,500) increase in full-time employment, wrote the bank in a note to clients. The good news from an inflation-fighting perspective was the fact that the unemployment rate increased from 4.1% to 4.2%.

This increase was obviously down to the fact that there was a bigger increase in the supply of labor, stated MUFG. The participation rate jumped to a new record high of 67.1%.

The increased participation in the labor market will certainly ease concerns over wage-fuelled inflation and allow the Reserve Bank of Australia (RBA) to justify not raising the key policy rate again but equally the strength of labor demand will curtail the appetite for cutting rates, added MUFG.

In addition to the jobs data of Thursday, data on inflation expectations revealed an increase from 4.3% to 4.5%, the second increase in three months and to the highest level since April, pointed out the bank. The RBA is currently priced to cut for the first time in December.

The RBA sidelined while much of the rest of G10 is cutting rates over the coming months is certainly AUD supportive but the biggest downside risks for AUD lie abroad, according to MUFG. Weaker global demand could well still drag AUD lower. News from China Thursday wasn't good with steel production plunging 9% m/m and y/y terms with the year-to-date (YTD) annual drop at 2.2% with production dragged down by the ongoing real estate collapse.

The top China steel producer Thursday warned that the industry is facing a crisis worse than in 2008 (Global Financial Crisis, or GFC) or 2015 (China shifting demand).

The weakness in the steel sector is evident in iron ore prices down 10% since the beginning of August and at the lowest level since August last year. The sharp drop in iron ore prices could certainly result in renewed downside pressure on AUD.

Finally, based on the yen upside risks highlighted above, the AUD would likely suffer if there was renewed upside pressure if yen (JPY) carry positions are cut further -- AUD/JPY has been a popular carry position in G10 FX, noted MUFG.