Australia hasn’t been immune to the wide swings in the market lately, largely due to liquidity fears.
Even countries like Australia who have not taken major economy-altering measures to combat the pandemic are seeing significant drops in capital markets.
While fundamentals might be looking up due to the restart of the Chinese economy, the issue of a looming credit crunch is weighing on markets. That’s why Australian jobs numbers are even more important than before.
The fate of the AUD is closely linked with what the RBA does next. Especially since the bank was already paying close attention to the jobs data before the current turmoil anyway!
The logic was that the economy needed to maintain near structural full employment in order to support inflation. Hence, the RBA’s policy is geared towards supporting job growth.
Liquidity is drying up as the markets are plunging due to economic uncertainty. Meanwhile, the RBA has been pumping cash into the market, buying up assets.
The bank has not declared its actions as quantitative easing. However, nearly quintupling normal asset purchases is the textbook definition of QE.
The issue is that the RBA has not set out a defined policy and easing regime. So, while its actions are having the effect of increasing available funds for the market, there is no certainty that it will continue. This leaves investors wondering how much support they can expect.
A majority of economists in Australia are predicting that the RBA will cut rates before their next meeting. Not only as a response to the economic situation but also because most other major central banks have done so.
This would put the reference rate at the bottom of the policy range, at which Lowe has repeatedly said that non-traditional measures would come into play.
Importantly, Lowe will be giving a speech tomorrow. So we expect people will pay extra attention to any hints about what the bank might do.
Especially Relevant Now
Jobs data is extra relevant now because Australian banks are heavily invested in the real estate sector. This had seen consistently climbing prices thanks, in part, to investment from China.
However, the housing market already took a turn for the worst last year. And, with the potential of Australians losing jobs as an effect of the COVID-19 outbreak, those mortgages could come under increased pressure.
We should look out for the RBA taking a keen interest in supporting maintaining jobs, and the government as well.
What About the Data?
The consensus is that Australia added 11.6K jobs last month, a further decrease from the 13.5K in January. Job losses typically lag behind the economic situation. So, it might be that the full effect of the drop in demand from China during the virus outbreak isn’t fully reflected in the figures.
Even so, the projection is for the lower end of the “normal” range that labor creation has been maintaining for years.
Expectations are for unemployment to tick down to 5.2% from 5.3%, at least remaining consistent with the trend. Even a slight improvement in jobs figures might not be enough to calm the markets. This is because we expect more layoffs in March.