Upcoming January Australia Employment Data

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Tomorrow is chock-full of key data from Australia that is especially relevant for fundamental analysis.

The RBA is putting a lot of emphasis on employment data to determine it’s monetary policy direction. If the jobs figures continue to deteriorate, it would increase the chances of a rate cut. And what will have a bigger impact on the markets is the potential for unconventional policy measures.

The data we’re waiting for covers January. This was back when there was a surge of optimism following the signing of the phase I trade agreement (the provisions of which became effective on Friday the 14th).

It might seem like a really long time ago, but it’s been less than two months since the deal was finally inked. The coronavirus – now officially COVID-19 – outbreak didn’t get on international news until half-way through the month.

Therefore, it likely wouldn’t have had much of an effect on the numbers we will be reviewing.

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What We Are Expecting

Of all the data points, what most influences the market is the Unemployment Change figure. For several years now it has been oscillating between 10-40K. Numbers beyond that range typically move the AUD significantly more. This is because they generally catch the market by surprise.

The consensus is for there to have been 31K net jobs created in Australia during January. This would be a slight increase from the 28.9K reported in the prior month.

The next important figure is the employment rate. Expectations are for this to increase slightly to 5.2% from 5.1%. In effect, it would be a continuation of the sideways trend that has been in place since June of last year.

The market could, however, interpret it as a negative sign. This is because some analysts had seen last month’s third consecutive drop in unemployment as a sign of a growing jobs market.

The Trends

In order to confirm that the employment situation is improving, we’d have to see a result of 5.0% or lower. That would likely be interpreted by the RBA that more easing isn’t necessary: their current expectations on employment for the first quarter is to average 5.2%.

On the other hand, an unemployment rate above 5.3% could indicate that the situation slipping out of control. This would then make the RBA feel more compelled to step in. We could see substantial weakness in the AUD if the unemployment rate were to move higher.

There are Two Important Bits of Context

First, the unemployment rate always has to be taken in the context of the participation rate.

We can expect it to stay stable at 66.0%. If participation increases, it would explain a rise in unemployment. Or, it would at least explain why the rate didn’t meet expectations and soften the market reaction.

Second, February and March are when we might see some impact from COVID-19 and the wildfires that have been afflicting Australia. Even if numbers beat expectations, they might get offset quickly in the coming data releases.

Alternatively, if the numbers are worse than we anticipate, there isn’t much hope that the employment situation will improve over the next couple of months.

This time around, the employment figures are likely to weigh on the Aussie.

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