Sean Callow, Research Analyst at Westpac, suggests that despite the better news from equities and commodities, AUD/USD continues to struggle ahead of 0.72 and the latest setback was Australia’s Jan labour force data today. Key Quotes “The headline jobs change of -8k was a fair way short of the +13k median forecast but shouldn’t have been a major surprise given the startling strength of job creation in Q4. Indeed at 2.6% y/y, annual growth in employment remains high for now, too high to be sustained unless GDP growth has accelerated unexpectedly. By state, NSW drove the decline though the split of -48k full-time vs +35k part-time jobs smacks of statistical noise in a month with a strong seasonal factor. (The actual or original change in jobs was -265k given temporary hiring for Christmas and January being the peak summer holiday period). The most market-sensitive aspect of the report was probably the unemployment rate, which rose from 5.8% to 6.0%. In part this was due to an uptick in the participation rate to 65.2%, consolidating an upswing from cycle lows of 64.5% in 2014. The 6.0% unemployment rate is in line with Westpac’s view as we are forecasting a 6.2% jobless rate in Q2-Q3. But in this month’s Statement on Monetary Policy, the RBA said that “While employment growth is expected to slow somewhat from the rapid pace seen in the December quarter, it is forecast to remain strong enough to reduce the unemployment rate further.” That was a more upbeat view on the job market than our economists had expected and at least based on the January report, the RBA could be heading for some disappointment on unemployment. Market pricing for a rate cut near term remains low, only 10% priced for 1 March and 33% for a cut by 5 April. But this could tilt towards greater risk of easing if unemployment spends the next few months in say the 6.0-6.2% area rather than say 5.8-5.9%. RBA easing risk will be one factor helping cap AUD/USD gains multi-week/month, with the 0.73-0.74 area only likely to give way if markets remain ultra-skeptical about the Fed’s tightening path at the same time as equity and oil price turbulence subsides. At this point, that looks like a pretty tall order.” For more information, read our latest forex news.