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AUD: Strong jobs growth but too early to conclude AUD weakening trend is over - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 12, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) - Derek Halpenny, European Head of GMR at MUFG, notes that their assumption that the Australian dollar would continue to gradually weaken over the coming quarters is in some doubt this morning after the jobs data from Australia came in way stronger than expected.

    Key Quotes

    “Employment increased by 58,600 in October with 40,000 of those jobs full-time positions. As a result of that the unemployment rate plunged from 6.2% to 5.9%. There has only been one stronger monthly gain in jobs growth (March 2012) since the financial crisis.”

    “Two opposing points are worth making here. Firstly, the strength of the report will be a surprise for the RBA. The latest monetary policy statement revealed that the RBA expected the unemployment rate to remain in a 6.0-6.5% range through most of next year. But secondly, the current stance of the RBA (modest bias to ease) exists in the context of knowing the labour market had been improving compared to last year.”

    “The RBA is likely to do two things now before jumping to any conclusions. First, it will wait another month to see whether the October gain is reversed and second it will assess other data to see if the strength of the labour market is putting upward pressure on wages.”

    “From an FX perspective, the short-term bias is clearly to the upside given the change in the balance of risks. However, the terms of trade position for Australia has deteriorated over the last month with iron ore prices down close to 15%. The industrial production data from China was weaker than expected this week and growth in Asia generally continues to slow. The AUD-US 2-year swap spread has jumped with the 2-year AUD rate up nearly 10bps but with the Fed set to go next month, that spread is unlikely to be a driver for AUD/USD moving higher. We’d be cautious of being long AUD/USD at this juncture. Our CNY forecast of 6.5100 by the middle of next year also suggests assuming a turning point for AUD at this stage may be premature.”
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