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The unemployment rate lifted to 5.3% in January paving the way for a rate cut by the Reserve Bank of Australia (RBA) in the second quarter of the year, according to strategists at ANZ. AUD/USD trades at 0.659 after falling in recent days.

Key quotes

“In his speech on 5 February, the RBA Governor said that, ‘the balance of arguments would change’ in favour of a rate cut, if ‘the unemployment rate were to be trending in the wrong direction and there was no further progress being made towards the inflation target.’  We are closer to the first condition being met after the unemployment rate jumped to 5.3% in January.” 

“ANZ data suggest the drop in international travel is bigger than can be explained simply by the ban on travellers from China. What’s more, the ANZ Stateometer points to a loss of momentum in some states in late 2019. The ANZ Labour Market Indicator tells a similar story about a loss of momentum.” 

“Weakness in the AUD may provide some offsetting stimulus, but we think an RBA rate cut in Q2 remains more likely than not.”