AUDUSD to Decline, Ignore Strong October Job Report
The Australian labour market is in robust health it seems, but this has failed to convince strategists at ABN Amro to take a more constructive stance on the Aussie dollar.
"Given our view that inflation will continue to ease further, we maintain our view that the RBA is likely to lower the Official Cash Rate by 25bp" - Roy Teo at ABN Amro.
A surprisingly strong October job report, which came well above consensus, has lowered Australia’s unemployment rate to 5.9% from September’s 6.2%.
The data boosted the AUD right across the board allowing the AUD/USD pair to trade at around 0.7133.
The GBP/AUD exchange rate has meanwhile plumbed an inter-week low of 2.1280.
Australia added 58,600 jobs in October, greatly surpassing the forecasted 15,000.
Full employment increased by 40,000, and part-time jobs increased by 18,600 but participation ticked up to 65%. The unemployment rate of 5.9% is the lowest Australia has seen since April 2014.
Australia’s labour market has been volatile, at best. In September, consensus was an uptick of 7,100 jobs but employment fell by 5,100.
The October job report was the reverse. Presently, close to 200,000 jobs have been added for the year; this is Australia’s biggest annual job gain in four years.
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ABN AMRO concurs the October job report highlights a rise in consumer confidence, which will bode well for retail in the upcoming holiday season.
Consumer sentiment rose 3.9% in October – precisely what the Reserve Bank of Australia desired, as this surge of confidence will spur spending and encourage business investments.
Strong October Employment Gains May Not Be Enough to Avert Bearish AUD Outlook
However, while some analysts are using this month’s numbers to make a case for an upwind change, ABN AMRO is not on board.
Roy Teo, Senior FX Strategist at ABN AMRO explains their position:
“Despite the above positive news, we maintain our bearish stance on the AUD.
“We acknowledge that the employment and consumer confidence data releases this week have reduced the likelihood that the Reserve Bank of Australia (RBA) will need to ease monetary policy anytime soon.
“However we like to highlight that the strong full time job gains in October could be due to ‘pay back’ from weak numbers in previous months.”
The picture on employment remains somewhat mixed with softer-than-expected service PMI employment sub index in both September and October suggesting the labour market will remain soft.
Furthermore, there has been encouraging signs that tighter macro prudential tools are curbing housing investors’ thirst for loans.
“Given our view that inflation will continue to ease further, we maintain our view that the RBA is likely to lower the Official Cash Rate by 25bp to 1.75% in early 2016,” says Teo.
As the Fed is likely to tighten monetary policy later this year in December and continue in 2016, AMN Amro maintain our view that the AUD will decline to 0.70 and 0.62 by the end of 2015 and 2016 respectively.
“In our view the current short term relief rally in the AUD is likely to fade around 0.72,” say ABN Amro.
