AU Employment Dispels Rate Cut Concerns (For Now)
Matt Simpson April 18, 2019 3:50 AM
Today’s employment data for Australia dispelled any immediate fears of a rate cut. Yet, if a certain correlation is to hold true, we could see unemployment rise and calls for a cut to return with it.
Unemployment ticked higher to 5% (4.9% previously) but as this was in line with expectation, the markets took it within stride and focussed on the positive employment growth and participation rate. The Australian dollar spikes broadly higher, yet struggled to hold onto gain as really, there was nothing monumental about the report overall. Whilst it was ‘okay’, the report served more to dispel fears of a rate cut following RBA’s dovish minutes earlier this week.
However, there is a correlation between capacity utilisation and the unemployment rate which is worth tracking. It’s not perfect (and they rarely ever are) but, generally their trends track each other over time and capacity utilisation has around a 3-month lead over unemployment. As the correlation is inverted, we’ve flipped capacity utilisation on the chart to better display the relationship. As capacity utilisation has been falling (rising on the chart) since April 2018, it means we should be on the lookout for rising unemployment over the coming months. Remembering that RBA see a rate cut as ‘appropriate’ if unemployment rises whilst inflation remains low, unemployment data could be the one which derails the Aussie if it does indeed begin to rise.
Whilst the market reaction was a little underwhelming, we’re keeping an eye on AUD/CHF as we suspect it may retrace before breaking above the February highs. Sitting near 2-month highs, It’s not uncommon to see prices retrace when they test structural level. Furthermore, price action is currently trading above the upper Keltner band, with an RSI(2) above 90 and currently within its 5th consecutive bullish session. If we close around current levels, tomorrow could present a rikshaw man doji at stretched levels, which is a clear sign of exhaustion. However, given the strength of the bullish leg, we’re looking for a minor pullback before the trend continues.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.