Coming up in the early hours of tomorrow, we have some key data that routinely moves the Asian commodity currencies.
There is likely some pent-up fundamental energy in the market since we haven’t had much in the way of major data releases for the last several days. The RBA has turned its focus towards employment as guiding its rate policy. And we are still waiting for the next rate cut!
There have been some recent developments in the economic landscape that have affected sentiment in Australia. The general upbeat outlook has muted a bit since Monday after the White House disclosed a “phase 1” deal was farther off than what many analysts were hoping for.
However, there is an increasing market optimism thanks to the Fed. On the one hand, an expanding balance sheet, and on the other, the latest rate cut being signaled as the last “insurance” installment.
What We Are Looking For
The number that usually gets the market’s attention is the Employment Change figure. Projections currently indicate that 21.5K jobs were created in Australia during October. This would be an improvement over the 14.7K registered in the prior month.
There is something of an informal “normal” range for net job adds. This is between 10K and 40K. Generally, we could expect a significantly stronger reaction in the market if we get a result beyond those parameters. The current expectations are for a pretty neutral middle ground. So, there likely won’t be much market pricing in ahead of the release.
The Trends Are Important
At the same time we also have the print of the Unemployment Rate. Expectations are for this to tick up to 5.3% from 5.2% prior. Just a decimal of change could be important here because of what it signals. A decimal higher would be an indication that the rate is continuing its upward climb from bottoming out earlier this year.
However, staying at 5.2% (or, better yet, falling) would be an indication that the rate has found a ceiling. And this could contribute to the RBA holding off on further rates.
Let’s not forget that 5.0% is around where most economists agree the structural unemployment level is. Despite the rise in unemployment, the trend in wage growth has remained consistently positive. And while Australia doesn’t have as much seasonality, it’s still important to remember that October is spring and usually has more demand for labor.
Another key point is that the RBA has something of an informal target of unemployment at or below 4.5%
The Other Signs
Earlier in the week, NAB Business Confidence bumped up a bit. This is a sign that employers might at least hold off on job cuts. Housing prices also appear to have turned around, finally, thanks to the influx of cheaper loans.
However, personal credit remains low, with many Australians continuing to invest their rising salaries in paying off debts.
Despite the green shoots, the RBA remains dovish. An interesting sign during the last meeting was the inclusion of a new phrase raising the possibility of “other policy options”. As if to hammer the point home, Governor Lowe is scheduled to give a speech on Quantitative Easing later this month.
Most analysts concur that the bank still has at least one if not two more rate cuts within its traditional policy toolkit. Therefore, unconventional measures are still far off. But, the bank might be laying the groundwork for communicating new policy in the future. That would continue to be a bearish sign for the AUD in the future.