Aust’ job slump boosts chance of rate cuts

Australian employment surprisingly tumbled last month, snapping four months of gains and sending the currency lower as traders boosted wagers on the Reserve Bank of Australia (RBA) switching to policy easing this year.

The economy shed 65,100 roles, led by the biggest monthly drop in fulltime employment since the height of pandemic, government data showed this week. Unemployment held at 3.9 per cent, cushioned by a sharp fall in the number of jobseekers.

Swaps traders priced in about a 60 per cent chance the central bank will lower borrowing costs in August, up from 50 per cent before the employment release.

“Make no mistake, the labour market is cooling and following a recent run of softer inflation data, RBA rate cuts are coming,” said Tony Sycamore, a market analyst at IG in Sydney. “Inflation data scheduled for release on January 31 will determine whether expectations of two 25 basis-point RBA rate cuts become three in 2024.”

While the monthly data is volatile, the result suggests a long-awaited loosening of the labour market may be in prospect following

4.25 percentage points of rate hikes since May 2022. The jobs report, together with fourth-quarter inflation data, will help shape the RBA’s policy decision at its February 5-6 meeting — the first of the year.

The central bank last month held rates at a 12-year high of 4.35 per cent while sticking with its tightening bias.

The employment report showed fulltime jobs plummeted by the most since May 2020 while part-time positions gained a bit over

40,000.

“A 106,600 decline in full employment is not Australian-dollar helpful and supports RBA rate-cut expectations in the secondhalf,” said Rodrigo Catril, a currency strategist at National Australia Bank in Sydney.

“The Australian dollar is at risk extending its recent decline.”