Australian Jobs Unexpectedly Slump, Boosting Rate-Cut Wagers
Australian employment took an unexpected hit in December, with 65,100 roles lost, according to government data released on Thursday. This sharp decline, the biggest monthly drop in full-time employment since the height of the pandemic, has led traders to increase their bets on the Reserve Bank of Australia (RBA) implementing policy easing this year.
While unemployment remained stable at 3.9%, the decrease in job seekers cushioned this figure. As a result of the disappointing data, the Australian dollar dipped by as much as 0.4%. Swaps traders are now pricing in about a 60% chance that the RBA will lower borrowing costs in August, up from the previous 50% before the employment report. However, stocks rebounded slightly after initial losses.
The decline in employment suggests a possible loosening of the labor market, which has been highly anticipated. This comes after a series of rate hikes totaling 4.25 percentage points since May 2022. Thursday’s report, along with the fourth-quarter inflation data, will play a crucial role in shaping the RBA’s policy decision at its upcoming meeting from February 5 to 6.
In anticipation of these developments, market analysts are already predicting rate cuts by the RBA. Tony Sycamore, a market analyst at IG in Sydney, stated, Make no mistake, the labor market is cooling and following a recent run of softer inflation data, RBA rate cuts are coming. The inflation data scheduled for release on January 31 will determine whether expectations of two 25 basis-point RBA rate cuts will turn into three by 2024.
The employment report further revealed that full-time jobs saw the most significant decline since May 2020, while part-time positions recorded a slight gain of over 40,000.
Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney, warned, A 106,600 decline in full employment is not Australian-dollar helpful and supports RBA rate-cut expectations in the second half. The Australian dollar is at risk of extending its recent decline.
Policymakers had previously described the labor market as tight, despite indicators such as job vacancies beginning to ease from high levels. With Thursday’s report, RBA watchers are increasingly confident that a policy easing is imminent.
Annual job growth dropped to 2.8% in December 2023 from 3.6% at the beginning of the year, and the RBA expects the jobless rate to rise to 4.25% by the end of this year.
According to Bloomberg Economics, Labor demand is on track to slow even faster as the economy decelerates. For the RBA, this will be a compelling reason to reverse course and start cutting rates as soon as the second quarter.
In summary, the unexpected slump in Australian jobs in December has fueled speculation of a rate cut by the RBA. With full-time employment experiencing its sharpest decline since May 2020, and part-time positions showing only a marginal increase, market analysts and traders are increasingly betting on a policy easing. The outcome of the RBA’s February meeting and the inflation data scheduled for release later this month will be crucial in determining the central bank’s next steps.
