CE : AUD Outlook – FXWW Chatroom

Drop in Australian employment could mark a turning point – Capital Economics 

The 2,900 drop in Australian employment in April brought to an end a strong run for the country’s labour market and pushed the unemployment rate up from 6.1% to 6.2%. Although we would be wary of reading too much into monthly changes in such a volatile data series, we do think that the unemployment rate will rise more sharply than most analysts expect over the rest of the year. 

Both ourselves and the consensus had been expecting the data to show a small increase in employment last month, but we had warned that a decline was possible after very strong gains in February and March. 

Despite the weakness of the April performance, we still wouldn’t rule out the Reserve Bank of Australia (RBA) revising its expectation for the peak in the unemployment rate down from 6.5% when it publishes its Statement on Monetary Policy tomorrow. On Tuesday the RBA noted that the labour market had performed strongly over the previous six months, and the April data is unlikely to have significantly altered that assessment. Any downward revisions to the central bank’s unemployment forecasts will add to speculation that Tuesday’s rate cut was the last in the current cycle. 

Nevertheless, we think the RBA is being too optimistic about the outlook for the economy and, in turn, the labour market. We still think that the unemployment rate could get close to 7% by the end of the year, and expect the central bank  to respond by cutting rates again. 

Daniel Martin 
Senior Asia Economist 

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