Soft AUD employment data challenges complacent RBA pricing - BNPP

Research Team at BNP Paribas, notes that the Australian September employment data was mixed as the unemployment rate came out slightly better than expectations (5.6% vs. 5.7% expected).

Key Quotes

“However, the participation rate dropped to the lowest level in almost two years and the country saw its biggest monthly drop in full-time jobs in five years. Recent RBA commentary suggests that if we see a string of downside surprises to employment and inflation (Q3 data is released 26 October), then the market is likely to price in a greater probability of an RBA rate cut in 2017 (currently discounted at a 45% chance).

However, we would note that our short-term fair value model BNP Paribas STEER™ signals the principal driver of the AUD is global equities rather than rates and commodities. Hence, for our very bearish sub 0.70 targets on AUDUSD to be realised, we need to see the risk environment come under pressure as Fed pricing builds.”