Australian Dollar Drops On Surprise Fall in Employment
- Written by: Gary Howes
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AUD is weaker as investors ramp up bets for cuts at the Reserve Bank of Australia.
Australia reported a surprisingly large slump in employment of 52.8k, whereas the consensus looked for an increase of 30k for February.
The previous month's figure was lowered to 30.5K and the participation rate fell to 66.8% from 67.2%, leaving the unemployment rate unchanged at 4.1%.
Following the release, money markets raised the odds of a May rate cut at the Reserve Bank of Australia (RBA) to 74%, compared to 62% prior to the release.
This adjustment prompted a fall in Australian bond yields, which automatically weighed on AUD.
"AUD/USD slumped by around 0.5% after the unusual configuration of Australian labour market data," says Joseph Capurso, an economist at Commonwealth Bank of Australia.
The Pound-to-Australian Dollar exchange rate (GBP/AUD) is up half a per cent at 2.0546.
However, breaking down the data reveals some curious developments that suggest the moves should fade.
The ABS says the fall in employment was largely due to older workers aged 55 and over opting not to return to work in February.
"We don’t think this print in isolation will have a material impact on the RBA’s monetary policy decisions moving forward. Labour market fundamentals remain solid, with an overall robust trend in employment growth," says Aaron Luk, an economist at ANZ.
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The ABS noted "higher levels of retirement in Australia in recent months", which also explains the downside surprise for the participation rate.
"As cost-of-living pressures have moderated, the impetus for marginal workers to remain in the labour force has diminished," says Ryan Wells, an economist at Westpac.
Westpac's stance is that the RBA "is unlikely to read too much into this month’s data," owing to the underlying trends, which suggests scope for financial market moves to fade.
Australian Dollar price action should increasingly shift to the U.S. tariff announcement due on April 02, where significant downside risks lie for trade-sensitive currencies like the AUD.
