Aussie traders should be delighted considering the recent downtick in September unemployment rate that allows the currency to rebound from weekly lows, although the consequences of the trade dispute and the continued slowdown in real estate construction should keep the gauge at current level by year-end, below the 4.50% optimum range set by the Reserve Bank of Australia. With inflation expected to close the year below the 2% - 3% target band, it seems that a sustained rebound in AUD is still limited as the RBA is expected to maintain its stimulus policy for the time being, with a 0.25 percentage point rate cut of its Cash Rate by December 2019.
The release of September unemployment rate at 5.20% (prior: 5.30%) had a positive impact on the Australian dollar, although a significant drag on residential construction, a sector that represents 2% of the total labor force and 6% of GDP, is expected to last until next year, which should weigh on the economy and employment data. As the RBA dovish Minutes confirm that the central bank is expected to ease further in order to support jobs and economic growth, the odds of seeing the RBA cutting its Cash Rate from historical low 0.75% to 0.50% in December, in line with the Fed’s easing cycle, is very likely. Implied volatility for a rate cut in November are now at 20% compared to 40% before the release of labor figures. Therefore, any sign of weakness of 3Q inflation published on 30 October 2019 should strengthen the case of further tightening by year-end.
AUD/USD is trading at 0.6817, trading at mid-September 2019 range after breaking key resistance at 0.6801 (24/09/2019 high), approaching 0.6860.
By Vincent Mivelaz