AUD/USD, AUD/JPY analysis: Employment report cools RBA-hike bets

Key takeaways

• The unemployment rate rose to 3.7%, and crossed above its 12-month MA
• Headline job growth declined -4.3k, weighed down by the loss of 27.1k full-time jobs
• The share of employees receiving pay roses >6% rose to a 10-year high
• I expect the RBA to continue tiptoeing their way around all of these data sets as they agonise their way through another ‘finally balanced’ decision between another pause or 25bp hike
• AUD was lower, but it appears to be more of a shakeout than the beginning of its next move lower

With wage growth slightly above expectations yesterday, a strong employment report could have seen further calls for RBA to hike in June. Only, employment was softer, which sent the Aussie lower as rate-hike bets cooled.

The unemployment rate rose to 3.7% and crossed above its 12-month average for the first time since the pandemic, whilst 7.1k full-time jobs were culled which weighed the headline job growth figure down to -4.2k.

But let’s keep some perspective. Unemployment is still very low at 3.7% compared with its long-term average of 6.7% and the participation rate remains just off its record high. Whilst employment figures have deteriorated slightly, the RBA will still consider employment to be tight. And that leaves the potential for another hike or two at some point in future, unless inflation falls faster than they currently anticipate.

Mixed wage data for Australia

Separately, wages rose 3.7% y/y compared with 3.6% expected and the share of jobs receiving larger pay rises are rising. Specifically, the share of jobs with rises over 3% are at a 14-year high, whilst rises of 6% or more are at a 10-year high. Whilst this is a metric worth keeping an eye on, the headline 3.7% rate is hardly the ‘wage spiral’ the RBA fear and it clearly lags inflation. The rate of acceleration is also slowing, and the RBA’s minutes that their ‘liaison contacts’ suggest wages pressures were stabilising.

RBA’s rate decision to remain 'finely balanced' in June

Overall, I expect the RBA to continue tiptoeing their way around all of these data sets as they agonise their way through another ‘finally balanced’ decision between another pause or 25bp hike. I suspect it really is more of a 50/50 than the cash rate futures imply, so now we’ll wait for next week’s monthly inflation report to see if it helps clear up the matter.

AUD/JPY 1-hour chart

The risk-on moves yesterday were fuelled by increased confidence that the US government will be able to raise its debt ceiling. This saw AUD/JPY break out of its triangle to the upside. After a tight consolidation at its highs, the weaker-than-expected employment report shook out some longs and send AUD/JPY back towards 91, where is found support around a cluster of technical levels (100-bar EMA, 91 handle, bullish trendline).

A lower wick suggests strong demand around the 91 handle, and the RSI (2) reaching oversold suggest a near-term inflection point.

From here, we’d consider bullish setups with any low volatility pullback towards 91 with a view for AUD/JPY to head back towards 92 / 91.75 high. A risk-on vibe in the European and US sessions could certainly help with this.

AUD/USD 1-hour chart

The Aussie is holding above 0.6620 despite the resurgence of the US dollar and weaker AU employment data. It’s clearly an important level over the near-term, given a double bottom has formed in the area which coincides with a strong bullish on the day of the RAB hike.

As a bullish divergence has formed on RSI (2) and (14), the bias is for another pop higher whilst prices hold above 0.6200. Whilst a break beneath it assumes a move through 0.6600 and back towards the YTD lows.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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