AUD slumps on disappointing jobs data

It has been a humbling session for the AUD with the recent squeeze higher coming to a screeching halt on the back of a disappointing local jobs number.

Yesterday saw AUD/USD extend its gains on the back of a much better-than-expected China trade balance number. The pair came within reach of January highs in the 0.908 region only to drop back to around 0.90. The release of local jobs numbers saw this level breached and AUD/USD is now back in the 0.895 region.

The unemployment rate climbed to 6% (from 5.8%), which was also worse than an expected 5.9%. While the market was expecting 15,000 jobs added, the data showed 3700 jobs lost with an alarming 7100 full time jobs shed. The participation rate actually fell to 64.5% (from 64.6%), yet the unemployment rate still rose. After last week’s RBA statement, many are already expecting to see unemployment continue to drift higher, but probably not at this rate.

RBA facing a tough task as CPI rises

The problem now is with a rate cut unlikely to materialise anytime soon given the recent spike in CPI, the RBA is stuck between a rock and a hard place. While the lower AUD and appreciating house prices are translating to higher inflation locally, the reality is the domestic economy remains extremely fragile with downward wage pressure. The RBA has already switched from a dovish to a more neutral bias and the impact this will have on sentiment over time will be very interesting.

Perhaps comments from RBA assistant governors Debelle and Kent later today will help shed some light on the RBA’s stance at the moment. On the USD side of the equation, data ramps up today with retail sales, unemployment claims and Janet Yellen’s second testimony. A move back to retest 0.89 in the near term is now looking likely for AUD/USD, while the 0.90 mark now presents short-term resistance.

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