Aussie ends the week broadly flat despite stronger jobs data for June

The Australian dollar ended the week largely unchanged, though priceaction was anything but quiet in between. A much stronger thanexpected labour force report pushed the currency to a weekly high of70.2 US cents, before an escalation in the Iran conflict and a sharp rise inoil prices dragged it back toward where it started. The Aussie's resilienceearlier in the week gave way to broader risk aversion as Brent crudeclimbed to two month highs, underscoring how quickly Middle Eastdevelopments are now overriding domestic drivers.Domestically, the labour force data for June was a focus. Employmentrose 76.3k in June, well ahead of consensus and our own forecasts,while the unemployment rate held at 4.4%. Looking through the monthlyvolatility, underlying momentum still points to a cooling labour market,with employment growth (on a 3m/3m basis) holding steady at 0.25%against labour force growth of 0.47%, a gap we expect will keep pushingthe unemployment rate higher toward our 4.6% end of 2026 forecast. Indeed, markets firmed pricing for a further RBA hike on the back of thedata, with a February 2027 move now fully priced, up from an 80%probability prior to the release. We remain unconvinced, given coolinglabour demand, an unemployment rate sitting 0.2ppts above the RBA'sMay forecast, and our continued expectation that inflation eases furtherinto the second half of the year. That said, there are some upside risksgiven the recent escalation in the Middle East. However, we still retainour call for the RBA to stay on hold through 2026 and into 2027, beforecutting in mid-2027.Flash PMI data for July added to the improving tone for the Australianeconomy. The manufacturing index rose to 51.7 (from 51.5), a fourthstraight month of expansion (>50) and the strongest pace since January,supported by the first rise in new orders in five months and the strongestemployment growth since April, despite export orders remaining weak.The services index also jumped to 53 (from 50.5), its strongest readingsince January. The improvement was supported by stronger output andemployment, while input costs rose on higher oil prices and were passedthrough via faster selling price growth.On the Middle East, oil prices rose to a two month high as the conflictbetween the US and Iran continued to broaden in scope and geographyrather than showing any signs of resolution.Brent crude prices breachedUS$100/bbl after Houthi militants attacked two Saudi oil tankers in theRed Sea, a route Saudi Arabia has increasingly relied on since the Straitof Hormuz closure. President Trump threatened to intensify strikes onIran and hold it responsible for further Houthi attacks, following almosttwo weeks of US strikes since Iran’s renewed action in the Strait ofHormuz. With no negotiations underway, further disruption to oil supplylooks likely, and could be a key driver for AUD in the near term.