The employment report from Australia yesterday was a shocker:
The consensus take on the report is that this cements no further rate hikes from the Reserve Bank of Australia. In addition, market pricing shifted from a 25bp rate cut in November to a cut in September.
HSBC, however, take a different view. Coming into this year HSBC were already tipping no RBA cuts in 2024 for 5 reasons. In (very) brief:
- core inflation is still well above the RBA’s target and is being held up by sticky components, particularly rents, and services
- productivity in Australia has been very weak, driving unit labour costs much stronger than is consistent with the RBA’s inflation target
- the RBA cash rate hikes (+425) were not as great as those from the Fed (+525bp) , ECB (+450) or Bank of England (+515), and so the RBA’s cash rate is, on the face of it, less far above a “neutral rate” than in these others, and is therefore less restrictive
- Federal fiscal policy is expected to loosen in mid-year, tax cuts on the way
- still high commodity prices, driven by supply constraints, geopolitical uncertainty, the energy transition and an expected ongoing policy-driven recovery in China, are set to underpin national incomes
Yesterday’s jobs report, says HSBC:
- slight increase in unemployment and minimal job growth may be seen positively by the RBA, indicating some labour market loosening
- but the employment-to-population rate remains high, suggesting continued labour market tightness
- further labour market easing will be needed before the RBA reverses course
AUD/USD update: