In the upcoming Asian session, we have the release of labor statistics from Australia. This includes the unemployment rate and employment change.
The release of the RBA minutes earlier in the week took a decidedly dovish turn. Following that, the hope for better Aussie data now has to turn to March employment data. The idea is that this month, there is the potential of recovering somewhat from last month’s somewhat dismal results.
What does this mean for the markets? Well, this is the last major data for Australia ahead of the extended holiday. So, we should probably pay extra attention to what the results may mean this time around.
Schedule and Expectations
All the employment data comes out at the same time at 03:30 CET (which is the day before at 21:30 EST.) And it’s the employment change number that gets the market’s attention.
The consensus among economists is that Australia added 20.6K jobs during March. This would be near the average for the last year or so, and a substantial improvement over the 4K reported in the prior month (which is subject to revisions). Last month’s results were quite a disappointment for the markets. They severely underperformed in comparison to expectations, despite a drop in the unemployment rate.
Over the last few years, something of a range has been established. Most of the results have come in between +10K and +40K. In fact, the markets consider results beyond those ranges a significant deviation.
Expectations are for the unemployment rate to move back to 5.0% from the 4.9% registered in the prior month. This would keep it in line with the sideways track it’s been holding since October. This, in turn, would lead some of the more pessimistic analysts to suggest it’s at a bottom. And, given the recent disappointing macro data, it will start inching higher.
The Employment Concern
During the last meeting of the RBA, members made it clear that if inflation did not move higher while unemployment did, then they would see a cut in interest rates a “likely appropriate.”
This caused a weakening in the AUD, as expected. If we get results from the employment data that lean in this direction, we could see further weakness in the currency.
As mentioned previously, one of the things we should be looking at is labor tightness. This is an indicator of potential future inflationary pressures. While the unemployment rate remains largely stagnant, a worrying concern is rising underemployment. This is a sign of a loosening of the labor market and indicates the potential for increasing the unemployment rate.
The sudden halt in the job creation rate last month was uncharacteristic. This is especially true given the 8-year low in the unemployment rate. With the labor force participation rate remaining stagnant, more optimistic analysts argue that the data might be a one-off. And, this time around, we might get revisions higher in the prior month data. This would reaffirm that the employment situation remains healthy.
However, the RBA still is in an awkward position. The inflation rate is just under their target, and unemployment is within what is largely considered a structural level. What’s more, the poor economic performance is uncharacteristic and it makes it hard for them to take any action that wouldn’t push the market away from their targets.
The market is largely pricing in a below-average result. So, a surprise on the upside could cause a pretty strong relief rally given the pent-up bears from the beginning of the week. On the other hand, with the long weekend ahead, risk-on appetite might be muted.