AUD: Over-reacting to monthly volatility – Westpac

Sean Callow, the senior currency strategist at Westpac, notes that the last time AUD traded below 68 cents was the 17th of October, on which Australia reported a fall in the unemployment rate to 5.2%, raising some caution that markets could be over-reacting to monthly volatility. 

• “Pricing for the RBA to cut rates in February 2020 jumped from about 50% to 75%. Given that the RBA last week forecast the unemployment rate to sit around 5.2% through end-2020, the recent gyrations in the official data from 5.2% to 5.3% are unlikely to move the dial greatly.
• However, Westpac was already predicting a February rate cut, so we won’t complain about market pricing moving closer to our view. The RBA is closely focused on the labour market and It was not a great week on that front. Along with the rise in the unemployment rate, October employment dropped 19,000, the largest monthly fall since 2016.
• The fall in jobs followed another soft reading on wages growth in Q3. Overall wages grew just 2.2% over the year to September, down from 2.3% in June. The RBA would like to see wages growth closer to 3 ½ percent in order for inflation to return to the middle of their 2 to 3% target band.
• Updates on Australian consumer sentiment and business confidence were also on the soft side of long term averages, to round out a fairly poor week of Australian economic data. But global factors have also chipped away at the Aussie.”