Australian jobs data delivered a gut punch to the currency.
The Australian dollar was the worst performing major currency against the greenback last week, after disappointing labour market data challenged the RBA’s hopes that the economy is experiencing a “gentle turning point” for the better.
The net employment change was -19,000 jobs in October, with the losses distributed across both full and part time work. Not a single one of the 29 forecasts submitted to Bloomberg for the release anticipated a contraction in employment, let alone one of this magnitude – the median forecast was for a net gain of 15,000 jobs.
Monthly jobs data are volatile, but the scale of the miss, and the fact that this was the first meaningful contraction in employment since 2016, was enough to put AUD squarely on the defensive.
The RBA left its cash rate unchanged at its most recent meeting, noting that “global financial markets appeared to have passed a trough of pessimism”, while noting faster growth in wages would be needed to sustainably reach its inflation target.
October’s labour market data has put a focus on exactly how optimistic the RBA is about the outlook for the labour market, and the “gentle turning point” Governor Lowe referenced in a recent speech.
With market expectations of further cuts in December currently very low, if the minutes suggest the RBA will prove sensitive to recent disappointments in retail sales and labour market data the bar for further AUD downside is likely to prove low.
Chart: AUDUSD rally falters in November after poor macrodata
Author: Ranko Berich, Head of Market Analysis at Monex Europe.