Was today’s strong Australian unemployment report for March a game changer?
That’s the question markets will be pondering this afternoon with the data instantly reducing the chance of a further rate cut from the RBA in May.
Before the data markets and economists were almost certain the official cash rate would be reduced to 2.0% come May 5. Cash rate futures had the probability at around 80% while economists, in a poll conducted by Bloomberg earlier this the month, were united in the belief than another rate cut was coming in May.
Only yesterday, following the release of their April consumer confidence report which fell 3.2%, Bill Evans, Chief Economist at Westpac, stated he was “extremely confident that the Bank (RBA) will finally deliver the much anticipated second cut of 25bps on May 5”.
Now, following the unemployment report – which was unilaterally strong across the board – doubts over a further rate cut, at least in the short-term, will be growing. While the seasonally-adjusted ABS figures are notoriously volatile, even the trend series, regarded as a more reliable labour market indicator, revealed an increase in employment of 20,700 with unemployment holding steady at 6.2%. Not bad at all.
While interest rate markets have moved in response to the data – the probability of a 0.25% rate cut is now hovering around 60% – it will be interesting to see whether expectations among the economic community will also follow suit.
Along with upcoming US data, an important part of the jigsaw puzzle for both US and Australian interest rates, RBA Governor Glenn Stevens’ speech in New York on April 20, along with Australia’s Q1 CPI release two days later, will be crucial.