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AUD/USD and NZD/USD Fundamental Daily Forecast – Australian Unemployment Rate Climbs; Rate Cut Chances Rise

Simply stated, if unemployment continues to rise, interest rates will fall again. Today’s figures are unlikely to prompt the RBA to cut rates in March. However, the unemployment rate is expected to continue to rise so a near-term future rate cut seems to be inevitable.
James Hyerczyk

The Australian and New Zealand Dollars are trading sharply lower on Thursday after a surprise jump in the Australian Unemployment Rate raised the chances of an April rate cut by the Reserve Bank of Australia (RBA). Data from the Australian Bureau of Statistics showed the seasonally adjusted unemployment rate in January rose to 5.3% from a reading of 5.1% in December.

At 09:33 GMT, the AUD/USD is trading .6630, down 0.0048 or -0.72% and the NZD/USD is at .6345, down 0.0041 or -0.64%.

Chance of March RBA Rate Cut Rises to 40 – 50%

“While the fall in the unemployment rate to 5.1% in December gave the RBA the signal that another interest rate cut was not necessary at its February meeting, today’s data confuses the interest rate debate because the RBA’s latest forecasts assume the unemployment rate will average 5.2% for now,” Diana Mousina, senior economist at AMP Capital, wrote in a note.

“in our view, the higher than expected lift in the unemployment rate on its own is unlikely to push the RBA to cut at its March meeting as the central bank would want to see if the increase in the unemployment rate will be repeated in next month’s employment figures,” Mousina said, though she warned the chance of a rate cut in March is high at around 40-50%..

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Jobless Rate Jumps in January

The Australian Bureau of Statistics (ABS) on Thursday reported the unexpected 0.2 percentage point increase in the national jobless rate. Unemployment jumped to 5.3 percent in January after a 31,500 rise in the number of people looking for work.

The Employment Change report showed the economy added 13.5K jobs in January. Traders were looking for a 10.0K increase. But this news wasn’t necessarily bullish because an extra 46,200 people gained full-time work through the month, but this was offset by a 32,700 drop in the number of part-time workers.

The jobless rate was pushed up by the large rise in the number of people out of work in a month affected by bushfires and the coronavirus outbreak. There were almost 726,000 people looking for employment, the largest number since April 2018.

The ABS also reported the number of hours worked fell by 8.1 million or 0.4 percent despite the increase in the proportion of full-time workers.

Daily Forecast

Simply stated, if unemployment continues to rise, interest rates will fall again. Since jobs data tends to be volatile from month-to-month, today’s figures are unlikely to prompt the RBA to cut rates in March. However, the unemployment rate is expected to continue to rise so a near-term future rate cut seems to be inevitable.

Capital Economics analyst Ben Udy said, “Business surveys are once again pointing to weaker employment growth this year, and household surveys are consistent with our forecast of the unemployment rate rising to 5.5 percent by the middle of this year. If we are right, we think that will be enough to convince the RBA to cut rates by 25 basis points in April and July.”

That would take the official Australian cash rate down to a fresh record low of just 0.25 percent, at which point the RBA would likely need to consider unconventional policy moves, such as quantitative easing, if the economy remained weak.

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