Australian labour and wages indicators point lower ahead of key data next week
The RBA essentially made a case to cut rates on Tuesday this week. However, it held back, perhaps influenced by the timing of the election (18 May), to give the labour market data a chance to show that it is on a tightening trend.This places much importance on the labour market data for April (16 May) and wages data for Q1 (15 May) due next week in Australia. One month's data may not be enough to clear the way to cut, especially after solid employment growth in Q1, but the RBA may not need all that much encouragement. Even modest weakness in the data may raise expectations of a cut in June (currently at 30% probability).
PMI data for Australia released in recent weeks had very weak employment and wages components and suggests there is a risk towards soft labour data next week.
The forecasts alluded to in the RBA policy statement on Tuesday implied that the RBA would need to cut rates soon. The quarterly Statement on Monetary Policy released later today may further emphasise a bias to cut rates.
The RBNZ rate cut this week confirmed that it has become more proactive than the RBA. It appears to be getting ahead of the curve, while the RBA risks falling behind the curve.
There is considerable scope for a hit to global high-beta assets if the Trump administration moves to raise tariffs. There may be only a modest recovery in risk appetite if the US-China trade talks are extended. The longer the talks drag on, the more delayed a possible global economic recovery, the greater the risk that the market loses confidence in global asset markets.
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Greg Gibbs is the director and founder of Amplifying Global FX Capital. Greg began his career at the Reserve Bank of Australia in 1989, and in the early 1990s, he was the first economics graduate at the Bank to be assigned to the foreign exchange dealing desk. In 1996, Greg joined Bankers Trust Australia on the FX sales desk covering Australian and international fund managers. In 1999, he joined Westpac Bank in New York and switched to the research side to become the bank’s first FX strategist based in New York, carving out a role covering major currencies. In 2002, he returned to Australia as senior FX strategist at RBC covering APAC currencies, and in 2006 he moved to ABN AMRO in Sydney, reuniting with many of his colleagues from Bankers Trust that were again part of a thriving full-service investment bank. Greg continued to work on at RBS in Sydney as senior FX strategist after it took over ABN AMRO in 2008. He moved to Singapore in July 2012 after the bank consolidated its FX business in Asia, and was appointed Head of APAC Markets Strategy for the bank in February 2014. In early 2015, Greg began to work on establishing his own company, Amplifying Global FX Capital, and launched its website in August 2015 after completing duties at RBS.
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