Australian Dollar Hops Higher on Jobs

The Australia’s jobs data surprised on the upside and is spurring some second thoughts about an RBA rate cut next month. The 14.5k increase in jobs was three times more than the Bloomberg consensus expected. 

The details were arguably even better than the optics, as a net 32.1k full-time jobs were created, while 17.7k part-time jobs were shed. In Q2, Australia lost an average of 2.8k full-time jobs a month. In Q3 it created an average of 14.1k such positions. 

 The Australian dollar, which had fallen out of favor in recent weeks, had been carving out a technical bottom this week, recording higher highs and higher lows each day. Nearby resistance is seen in the $1.0300-15 area. These gains are likely to prove corrective in nature. 

In our weekly technical outlook, we noted that the Australian dollar had finished last week just below the lower Bollinger band (two standard deviations below the 20-day moving average) and cautioned against selling into the downtrend.   Fully respecting the fact that returns (price changes) are not normally distributed, we understood a move of such a magnitude is rare.  The 20-day moving average comes in now near $1.0350, which also roughly corresponds to a downtrend line drawn off the mid-September higher above $1.06 and the late September high near $1.0475.  

On a rolling 60-day basis, using percentage change, the Australian dollar is about as correlated with the S&P 500 as gold., which is 0.62-0.64.   The correlations over the past 30-days is slightly lower 0.60-0.64.  For the curious, we note that the Australian dollar's correlation with China's Shanghai Composite is roughly half of that with gold and the S&P 500.    . 

A rate next month may still be on the table. The unemployment rate, which the RBA tends to emphasize rose 0.3% to 5.4%. That is the biggest rise in three years. As increasingly people are familiar with in the US, the unemployment rate say more about the participation rate than job creation, the same is true in Australia. Labor force participation had fallen to a 5-year low in Australia (65%) in August and rose 0.2% in September.  

The minutes from the RBA’s October meeting will be released next week (October 15) and may offer insight into the penchant for cutting rates at successive meetings. However, many operators may be reluctant to take too strong a view ahead of the Q3 CPI report the following week (Oct 23).