At last week’s meeting, the Reserve Bank of Australia (RBA) cut the official cash rate for the first time since 2016, by 25bp to 1.25%. In the last paragraph of the accompanying statement, Governor Lowe said the likelihood of future interest rate cuts were dependent on developments in the labour market “The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.”
No surprises then that there has been such intense scrutiny after the release of this morning’s labour force data for May which has turned out to be somewhat of a mixed bag. Employment rose by +42.3k in May beating expectations of a 16k increase. Most of the rise came from an increase in part-time jobs, likely a temporary boost from election-related jobs.
Defying expectations of a fall to 5.1%, the unemployment rate remained unchanged at 5.2%, to consolidate its move away from the 4.9% cycle low in February. However, behind the higher than expected unemployment rate was a rise in the participation rate to 66.0%, a record high and a sign that more unemployed workers have been encouraged to look for work.
The mixed details of the report do not provide any clarity as to whether the RBA will deliver a follow-up cut again in July or August. Current market pricing has 13 bp of a cut priced for the July meeting and a full 25bp cut priced by August. Another 25bp cut is priced for early 2020, which would take the cash rate back to 0.75%. With so much RBA easing activity already priced into the interest rate market and by association the AUDUSD, it may just be that the fate of the AUDUSD remains in the hands of the technical backdrop.
Last week’s rejection from the .7022 high, confirms the AUDUSD’s downtrend remains in place and vulnerable to a retest and break of the May quadruple low at .6865. Conversely, should the AUDUSD register a break/close above .7020/25, it would negate the short-term negative bias and allow the rally to extend back towards the 200-day moving average, .7120 area.
Source Tradingview. The figures stated are as of the 13th of June 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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