Aussie shrugs after positive jobs report

Australia’s employment report for January was better than expected, but the Australian dollar didn’t respond to the positive news.  The economy added 12.9 thousand jobs, beating the consensus of a flat zero reading. Unemployment was unchanged at 4.2%, while the participation rate inched upwards to 66.2%, up from 66.1% and above the consensus of 66.0%. The rise in the participation rate, although small is an encouraging sign.

Is the RBA in the midst of a hawkish pivot? Governor Lowe has long insisted that the central bank will not raise rates in 2023 (or later), but low unemployment and rising inflation have a way of causing central bankers to shift stances, as Jerome Powell and Andrew Bailey can attest. On Wednesday, Deputy Governor Guy Debelle told a Senate committee that the cash rate could go up in the next 12 months, but such a move was not “inevitable”. The markets have priced in a lift-off in rate hikes before the end of the year, and I would not be surprised if RBA policymakers continue to sound more hawkish about policy.

Fed plans to hike, reduce balance sheet

The Federal Reserve minutes indicated that plans to tighten monetary policy continue. Officials indicated that interest rates are coming soon, strongly hinting that lift-off will take place in March. As well, the Fed plans a significant reduction in the balance sheet, which has ballooned to nine trillion dollars as a result of aggressive bond-buying in an effort to stimulate growth during the Covid pandemic. The Fed will end its QE programme in March as scheduled, although some members at the Fed meeting wanted to wind up the program earlier.

The markets continue to keep a worried eye on events on the Russia/Ukraine border. The White House is disputing the Russian claim that it has moved forces away from the border, and there were reports earlier today that Ukrainian forces had shelled a region that is Ukrainian territory but controlled by Russian separatists. This report has dampened risk appetite and pushed the US dollar slightly higher.

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AUD/USD Technical

• AUD/USD continues to rally and is testing resistance at 0.7168. Above, there is resistance at 0.7258
• There is support at 0.6987 and 0.6896

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