An RBA rate cut in doubt after robust jobs data

The unemployment rate fell to 5.1% and with it interest rate markets have sold off, taking the probabilities of a 25bp rate cut from 60 to 25%.

The RBA have made known their focus on the unemployment rate to determine policy. Expectations were for unemployment to hold steady at 5.2%, so the better than expected print gives some optimism that last year’s rate cuts could be starting to ease pressure on the labour market as planned - although that’s a big if. AUDUSD jumped 30 pips on the good news.

AUDUSD trading higher on the day.

Moving the other way, the AUS200, a market largely propped up by low interest rates, slipped, driven by the reduction in rate cut probabilities. A poor tape across broader Asian equities has also fueled the declines.

AUS200 trading lower today after a record high yesterday.

Note that the participation rate remained the same. That’s 66% of the Australian population either working or looking for work: they’re in the labour market. So on the surface that 28.9k increase in the jobs number reduced the unemployment rate to 5.1%. Great.

But then consider what comprised that 28.9k increase. The number of full-time workers actually declined by a modest 300. It was part-time employment that saw a boost of 29.2k workers. Being December data, this suggests casual, short-term hiring during the Christmas rush.

All the while, the part-time share of employment lifted from 31.4% to 31.8%. Trend underemployment and underutilisation held steady at 8.3% and 13.5% respectively.

So the question here is whether this boost in part-time employment only is enough to hold the unemployment rate lower going forward. Or is ready to blow over and roll the rate back to 5.2% for the January data?

But for now, on balance, it seems a February RBA rate cut is off the cards. That is, unless next week’s CPI reading comes in particularly poor (1.6% YoY expected).