Aussie Falls After Jobs Data as Goldman Forecasts RBA Rate Cut

  • Jobs report prompted some traders to take profits: Mizuho
  • Goldman Sachs expects RBA to cut rates between May and July

The Australian dollar tumbled after a disappointing jobs report fueled investor doubts about whether the central bank is done cutting interest rates.

The Aussie declined against all but one of its 16 major peers. The nation’s unemployment rate unexpectedly rose to 6 percent in January, according to the statistics bureau. The Reserve Bank of Australia, which left interest rates unchanged at a record low this month, will cut its benchmark interest rate to 1.5 percent this year, Goldman Sachs Group Inc. analysts said in a note to clients. The New Zealand dollar rose for the first time in five days against the Aussie.

“The employment data falling below forecast prompted some short-term players to take profits,” said Masafumi Yamamoto, chief currency strategist in Tokyo at Mizuho Securities Co. “The data raised questions about the recent optimism about the country’s good labor market and weighed on the currency. But it’s too early to say whether this will prompt the RBA to consider cutting rates.”

The Aussie fell 0.4 percent to 71.58 U.S. cents at 7:14 a.m. in New York, after slipping as much as 0.7 percent. The New Zealand dollar strengthened 0.4 percent against the Aussie. A surge in crude-oil prices lifted the currencies of commodity-exporting nations Wednesday.

RBA Outlook

The RBA said in minutes of its Feb. 2 policy meeting released Tuesday that it will monitor whether strong jobs growth is sustained. The probability that the central bank will reduce rates by its August meeting climbed to 67 percent, from 60 percent Wednesday, interest-rate swaps show.

Goldman Sachs analysts led by Tim Toohey, chief economist in Australia, said they expect the RBA to cut rates from 2 percent in the period between May and July.

“A number of factors have combined to increase the prospect that the RBA will again be dragged into a deeper easing cycle,” they said in a report dated Feb. 18. “A new round of central bank easing -- including further moves into negative interest-rate space and the market’s diminished assessment of the prospect of further U.S. Federal Reserve hikes -- leaves Australia vulnerable to a higher exchange rate and tighter financial conditions should the RBA elect to leave interest rates unchanged.”

Not everyone agrees with Goldman. While some of the jobs data had been overstating the strength of the labor market at the end of 2015, the trend of employment growth has been good, said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London.

“The data should not sway the RBA,” said Dragicevich “They look to be on hold, and will wait for further information on the labor market picture.”

The Aussie may still be vulnerable to further declines as traders begin to re-price greater expectations for the Fed to raise interest rates again this year, after they all but abandoned their bets, he said.

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