RBA: RBA Indicators Signal Labour Market Adding To Price Pressures
In June, Deputy Governor Bullock spoke about the labour market and pointed out that the NAIRU was estimated to be around 4.5% and thus the current labour market situation is inflationary. The labour market remains “very tight”. Bullock also pointed out four labour market indicators that the RBA is watching closely. Today we got updates for three of them and they suggest little change in the labour market.
- The unemployment rate was 3.5% in both May and June, thus 1pp below the NAIRU. See MNI Labour Market Still Very Tight, August Hike On Cards for details. An increase in jobs and a drop in the number of unemployed saw it fall to 2 decimal places.
- The underemployment rate was steady in June at 6.4%, which is 0.4pp above the February low but still 2.1pp below the pre-pandemic January 2020 rate. Full-time employees are working more hours but this trend is less pronounced for part-timers.
Source: MNI - Market News/ABS
- The RBA also looks at the quarterly ratio of vacancies to unemployment. Q2 unemployed rose 0.5% q/q, which was less than Q1, but vacancies fell 2% q/q. The ratio eased further to 83.5 in Q2 from 85.7, off its Q3 2022 peak of 91.9 but it is still significantly higher than pre Covid and signalling that there is just under one vacancy per job seeker.
Source: MNI - Market News/ABS/Refinitiv
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AUSSIE BONDS: Richer After RBA Minutes But Off Best Levels
ACGBs are currently sitting in the middle of the Sydney session’s range (YM flat & XM -5.0) after the initial favourable response to the release of the June RBA Minutes faded. Currently, 3-year and 10-year futures are 6bp and 3bp firmer post-Minutes after being as much as +11bp and +7.5bp at one stage.
- Despite the RBA minutes not showing explicit dovishness, market sentiment appears to have been influenced by subtle changes in wording regarding the necessity of additional tightening, along with the finely balanced decision on whether to raise interest rates or maintain the status quo. The surge in pricing can also be attributed to an oversold condition for futures prior to the release.
- RBA Deputy Governor Bullock has just addressed the AIG in Newcastle. Her speech was focused on recent labour market developments.
- The 3/10 cash curve has twist steepened with pricing 1bp richer to +5bp cheaper.
- Swaps are flat to 5bp higher on the day.
- Bills strip steepens with pricing -1 to +3.
- RBA dated OIS pricing is 2-5bp softer across meetings with November leading.
- The local calendar is light tomorrow with Westpac-MI Leading Index as the highlight.
- The AOFM plans to sell A$700mn of the 3.50% 21 December 2034 bond tomorrow.
EURUSD TECHS: Trend Needle Points North
- RES 4: 1.1185 High Mar 31 2022
- RES 3: 1.1095 High Apr 26 and key resistance
- RES 2: 1.1054 High May 8
- RES 1: 1.0986 61.8% retracement of the Apr 26 - May 31 downleg
- PRICE: 1.0915 @ 05:52 BST Jun 20
- SUP 1: 1.0864/1.0804 High Jun 14 / Low Jun 15
- SUP 2: 1.0818 20-day EMA
- SUP 3: 1.0733 Low Jun 12
- SUP 4: 1.0667/35 Low Jun 6 / Low May 31 and the bear trigger
A bullish theme in EURUSD remains intact. The pair rallied sharply higher last week, extending the bull cycle that started at 1.0635 on May 31. A number of important retracement points have been cleared, reinforcing bullish conditions and this signals scope for an extension towards 1.0986, 76.4% of the Apr 26 - May 31 downleg. A break of this level would open 1.1054, the May 8 high. Initial firm support is last Thursday’s low of 1.0804.
BUND TECHS: (U3) Bearish Theme Remains Intact
- RES 4: 136.50 High May 11
- RES 3: 135.85 High Jun 1 and key short-term resistance
- RES 2: 134.77/95 / High Jun 12 / 6
- RES 1: 133.69 20-day EMA
- PRICE: 132.64 @ 05:31 BST Jun 20
- SUP 1: 132.18 Low Jun 16
- SUP 2: 132.12 Low May 26 and key support
- SUP 3: 131.89 1.00 projection of the Jun 1 - 8 - 12 price swing
- SUP 4: 131.21 1.236 projection of the Jun 1 - 8 - 12 price swing
Bund futures traded lower Monday. The contract maintains a softer tone and short-term gains are considered corrective. Resistance at 134.77, the Jun 12 high, remains intact. A break of this level is required to expose key short-term resistance at 135.85, the Jun 1 high. Support at 132.97, the Jun 8 low, was cleared last week and the break opens 132.12, the May 26 low and a bear trigger. Clearance of this level would strengthen bearish conditions.
