Australian employment figures beat forecast – Rates markets and AUD reaction

Australian October employment figures released at 11:30 AEDST handily beat expectations with 32.2k jobs added for the month (15k expected), the unemployment rate also unexpectedly fell to 3.4% when it was expected to be unchanged at 3.5%.

Coupled with yesterdays beat in the Wage Price index which showed wages increased 1% in Q3 paints an optimistic view of the Australian labour markets resilience in the face of decades high inflation and rising interest rates.

Today’s figure is the last significant scheduled economic announcement out of Australia before the December rate meeting on the 6th,at this morning’s open futures were pricing in a 59% chance of a 25 bp hike rather than a pause, with the market split todays figure was being closely watched to see if it could tilt the needle either way.

December 30 day interbank futures were priced at 97.03 going into the figure, once a big beat was announced we saw the price drop to 91.015 showing bond traders now expect the RBA to go the 25bp hike with a 63% probability.

AUDUSD had a pop on the employment figure, though quickly retraced despite the repricing of RBA rate hike expectations next month.

On the surface this reaction in the AUD looks surprising, but it has been evident for quite a while now that the RBA and its rate hiking trajectory is very much playing second fiddle to Global risk sentiment when it comes to the direction of the AUD.

I would expect a similar response in the AUD come December 6, if we get a pause a small drop, a hike a small pop, but neither will show any follow through unless the underlying risk sentiment supports it, so trade the AUD with that in mind.