UBS analyst team believes than below the rosy surface, the Australian employment report was less rosy. However, chances of a May rate cut by the RBA have been lowered. UBS is still bearish on the AUD at current levels. Key Quotes “On the surface the Australian employment report looks rosy. The unemployment rate in March fell unexpectedly to 5.7% from 5.8% in February, its lowest level since September 2013. The participation rate remained unchanged at 64.9%.However, the details of the report paint a less rosy picture”. “A collapse in hours worked and a decline in full-time employment highlight two important elements we have been looking out for. One is overall wage growth, which is likely to remain weak; the other is the impact of lower wage growth on broader consumption, particularly its contribution to GDP. This data adds to our conviction of a weaker contribution in the quarters ahead. We see this partially being reflected through consumer confidence, which turned down in April. Still, we admit that the labor market is less negative, and the recent jump in business confidence is consistent with this. The AUDUSD response to the data was muted, bouncing around 0.762-0.766.” “RBA now less likely to cut in May. We acknowledge that today's report was broadly in line with the Reserve Bank of Australia's (RBA) relatively optimistic view, and to this point jobs strength certainly lowers the likelihood of an interest rate cut in May, even if inflation prints below expectations of around 2%.” “The most recent RBA minutes noted "continued low inflation would provide scope for easier policy" if needed to "lend support to demand". We maintain that downside risks to consumption remain, and therefore we do not completely rule out further rate cuts, although our base case is still for the RBA to stay on hold.” “Also, we remain bearish on the AUD at current levels. Alongside a toughening domestic picture for 2H16, we see the US Federal Reserve starting to tighten again during this period and the recent stronger China data fading somewhat. We reiterate our AUD/USD forecast of 0.71 over three months, and our recommendation of a short AUD long CAD position.” For more information, read our latest forex news.