Following an impressive gain of +366k jobs in November, the Australian economy added another +64.8k job in December. The seasonally adjusted unemployment rate fell to 4.2% from 4.6%, its lowest level since pre the Global Financial Crisis, August 2008
As noted in our preview yesterday, the survey reference period was November 28th to December 11th, pre the surge in Omicron cases in late December. As such, the impact of Omicron will not be seen until the January and February jobs data and result in a renewed, albeit temporary, hit to employment.
The recovery in the labour market sees the level of employment now 0.5% above pre-Delta levels. At this pace the unemployment rate is set to fall below 4% in the coming months and almost certainly spells the end to the RBA’s QE program in February.
During the second half of 2021, the Reserve Bank of Australia noted on many occasions that a tighter labour market was required to lift wages growth as a prerequisite to raising interest rates.
Based on today’s data, wages growth should accelerate towards 3% y/y by the second half of 2022, putting the start of an RBA tightening cycle firmly on the calendar for early in the second half of 2022.
The preferred way to play today’s robust jobs data is via long AUDNZD, which takes out of the equation some of the event risk of next week’s Federal Reserve meeting.
Additionally, it incorporates the benefits of Chinese policymakers taking further steps to meet their growth targets by cutting the one-year loan prime rate by 10 basis points to 3.7% and the five-year rate by 5 basis points to 4.6%. It is worth noting that when Chinese authorities set and reaffirm growth targets, they rarely miss them.
Technically, the break above resistance/congestion at 1.0650 allows the rally to extend towards the top of the six-month trend channel from the 1.1043 August high at 1.0820.
To take advantage of this view, use dips back towards 1.0665/45 to open longs in AUDNZD, looking to take profit 1.0800/20. Stops should be placed below the 2022 range lows at 1.0565.
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