Daily Brief – A look down under

A look down under

The Australian Dollar has attracted deserved attention in recent weeks. Thanks to a weak jobs report in the early hours of this morning, that scrutiny may be set to continue. This morning’s data showed that the unemployment rate in Australia jumped unexpectedly in September. The headline release saw unemployment notch up by just 0.1% to 4.7%. However, the detail behind the headline data made the overall jobs report of much greater concern to the economy and Aussie Dollar alike.

This morning’s weak data added to a theme that started on 29th September at the Reserve Bank of Australia’s last monetary policy decision. That decision saw the RBA deliver a hike and statement that talked tough on tackling inflation. However, the press conference that accompanied that publication saw the RBA governor present things in a vastly different light. The governor gave the market the impression that the RBA might be on hold following its September hike. With the market favouring the sentiment of the governor over the wording of the committee, that event created a headwind for AUD that still endures today. Thanks to the weak labour market read this morning, it looks like the expectation of the RBA might be manifesting further.

Following the data release this morning, there is an emerging probability (≈20%) that Australia’s hiking cycle is done for now. Despite Australia adopting its highest benchmark interest rate in around 15 years, its headline rate still puts it in a negative interest rate differential with many major economies. That yield differential is going to weigh on the Australian dollar whilst hiking cycles globally continue at pace. The market this morning is going to be distracted by an evolving chip-stock sell-off that is driving a risk-off tone in markets. Against the backdrop of this morning’s data, the Australian dollar may find itself particularly vulnerable.

Discussion and Analysis by Charles Porter

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