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An RBA rate cut in doubt after robust jobs data

Sean MacLean
Research Strategist
22 Jan 2020
Aussie employment data this morning came in rosier than expected with an increase of 28.9k jobs against the 10k anticipated.

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 daily chart
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 daily chart
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).

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