SPECIAL REPORT: Does The RBA Cut In Nov. Following Weak Aussie Jobs?


*Employment data expected to depict subdued Aussie labour market conditions
*Probability of a 25bps Nov. rate cut has room to rise aggressively
*The RBA are prepared to ease further to support full employment



Aussie jobs in the spotlight

It's that time of the month again that provides AUDUSD traders heightened volatility as the all-important readings for the Aussie labour force hit the wires. This time round the labour report which shows key employment indicators for the month of September is due out on Thursday October 17 at 11.30am AEDT. While price action around October's RBA minutes was negligible; markets will look to Aussie jobs for guidance on which way the RBA - who "continue to monitor developments...[especially] in the labour market" - tilts walking into November. 
 

Details will be important

September's employment print is forecasted for a moderate 15k rise, a decline on the prior month's 35k increase. The unemployment rate should come in at 5.3% unchanged from its last reading.

If we do happen to print 15k, on face value, it suggests jobs are still being added at a healthy pace and that the RBA's June and July rate cuts are working their way through the economy. We recognise however that it'll be the nuance of the report that holds more weight for how markets gauge the overall labour picture like it did last month, where Oct. rate cut expectations rapidly rose after it was shown that full-time jobs (FTE) actually declined 16k and the headline number was instead driven by a 50k increase in part-time employment (PTE). In any case, we expect close attention to be paid to the underlying drivers - FTE, PTE, unemployment and participation rate - in determining the state of the Aussie labour market. 

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Underlying drivers in the Aussie jobs report. Source: ABS, ThinkMarkets
 

RBA November implications

Markets are split at the moment as to how the RBA will move, with short-term rate futures at time of writing implying a 40% chance that the RBA undertake a 25bps rate cut in November. 

A weak or soft jobs print highlights the need for November stimulus and could see expectations rally for a 25bps rate cut next month. This puts bearish pressure on AUDUSD. After all, the RBA have acknowledged their own preparedness to "ease monetary policy further" to support full employment and reduce spare capacity in the Aussie labour market. Markets can take comfort in the RBA's recognition that AUDUSD weakness is supporting growth and that "transmission [of lower interest rates] through to the exchange rate was still considered effective". Considerations of a Fed cut in October should also tilt the RBA more dovish. 

A stronger jobs print is likely to strengthen bets - currently implying a 60% probability - that the RBA hold in November. Indeed, it keeps "some monetary stimulus in the reserve to address any future negative shocks" seeing as we're only three rate cuts off the effective lower bound of 0%. 
 

AUDUSD price action

Trading ranges of 39-73pips have taken place over the prior five employment prints. We lean more towards the top of that H-L day range for this print given how split markets are at the moment on RBA November and the RBA's general dovish lean.

Current spot: 0.6733
On a strong jobs print, intra-month upside pivot levels: 0.6788 (+55pips) and 0.6810 (+77pips).
On a weak jobs print, intra-month downside pivot levels: 0.6709 (-24pips) and 0.6670 (-63pips).


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