Unlike in the US, Australian labor market, to the surprise of many, not even failed to rebound in May, but continued to deteriorate, putting pressure on the RBA to hint about fresh easing measures.
The number of jobs in the economy declined by 227 thousand, with expectations of approximately half less (-125K). The size of labor force has also decreased, as LFPR has fallen from 63.7% to 62.9%, i.e. we see more workers losing hope to find a job and moving out of the labor force. It is certainly not a welcomed development.
Decline in the number of jobs in April was revised to the downside: from -594K to -607K. The number of unemployed has risen to 928K or 7.1%, the highest level since 2001.
Australia, like many other developed countries, has introduced a scheme of loans and grants for the firms which can save jobs, but the effect, as we see, is low, due to significant restrictions on mobility in May. In June, mobility increased, but the government will only move to the third phase of lifting restrictions in July, therefore, for now jobs will continue to concentrate in the low-skilled sector, such as retail.
Central Bank Policy
The RBA said it had no intention of raising cash rate; given disappointing labor market data for May, policy normalization is ruled out not only this year, but most likely in 2021 too. Earlier, RBA head Low stated that the central bank would not want to enter the path of negative rates, but given the attractiveness of verbal interventions ( as the Fed has already proved to us with its “hodgepodge” of “limitless” credit lines, which were enough just to announce), the RBA may also hint that it does not exclude the possibility of negative rates, which may cause a weakening of AUD.
From a technical point of view, the AUDUSD pair erased decline since the beginning of March, having formed a small double top (a pattern often preceding a reversal) in the zone of resistance formed in the second half of 2019:
As a result, the pair may stage a pullback to the nearest level of 0.68, and then to the level of 0.6650 – 0.67, before we can consider purchases again.
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