Payrolls fell 23,000 in July, trimming Fed hike bets. Focus shifts to the RBA statement and SoMP, where a downward revision could weigh on the AUD.
Alpha Score of 37 reflects weak overall profile with moderate momentum, poor value, weak quality. Based on 3 of 4 signals — score is capped at 90 until remaining data ingests.
US payrolls fell by 23,000 in July, the second consecutive weak print after a strong run earlier this year. The report missed forecasts for an 80,000 gain, and the Labor Department revised May down by 66,000 and June by 37,000, a combined 103,000 lower than previously reported. The revisions pulled the three-month average of job growth to just 20,000, below the roughly 50,000 pace needed to keep the unemployment rate steady.
Under normal conditions, that shortfall would push the unemployment rate up. Instead it fell, to 4.1% from 4.2%, because the labour force shrank by 264,000. FP Markets Chief Market Analyst Aaron Hill said the improvement was a participation story, not a jobs story. Net employment fell by 87,000, and the participation rate dropped to 61.4%, the lowest since early 2021. The pattern echoed June's report, where the same dynamic played out.
Wage growth cooled as well. Average hourly earnings rose 3.2% from a year earlier, down from 3.5% in June, and 0.1% on the month, down from 0.3%.
The OIS curve repriced dovish after the report. Year-end Fed pricing shifted from 22 basis points of tightening to 17, and the September meeting from about 7 basis points to 5, Hill said.
Treasury yields bull-steepened, led by the front end. The dollar dropped across the board. USD/JPY and USD/CAD saw the largest downside moves, and a strong Canadian jobs report, released at the same time, added to the pressure on USD/CAD.
Hill said he does not envisage the Fed raising rates if jobs data keeps softening and inflation keeps weakening. Inflation, he said, remains more important to the Fed than jobs right now.
Attention shifts to the Reserve Bank of Australia, which announces its decision at 4:30 am GMT on Tuesday. Consensus expects the RBA to hold the cash rate at 4.35% for a second consecutive meeting, after 75 basis points of hikes this year.
Since June's meeting, headline CPI eased to 3.8% year on year from 4%, while the RBA's preferred measure, trimmed-mean inflation, edged up in the second quarter to 3.6% from 3.5%. The print came in below the market's median estimate of 3.7%. It remains above the RBA's 2-3% target band and above the central bank's May forecasts for year-end.
The labour market has loosened as well. Unemployment ran near 3.5% in 2022, and has since drifted into a 4.1-4.5% range, with June's 4.4% near the top of that band. Employment rose strongly in June, adding just shy of 80,000 jobs, up from May's roughly 44,000.
The RBA, Hill said, is unlikely to change policy, given the slower decline in inflation and a loosening jobs market. He described central bank communication as two-sided, so the statement and the SoMP carry the weight.
The May SoMP projected the cash rate at 4.7% by year-end and trimmed-mean inflation at 3.8% for June and 3.5% by the end of the year. June's trimmed-mean print of 3.6% came in below the June projection and almost in line with the year-end estimate.
Hill said he will watch closely for a downward revision in both the trimmed-mean and the cash rate forecasts, a move he described as an ideal dovish scenario and one that would be negative for the AUD.
A hawkish hold that leaves the projections unchanged would, he said, be AUD positive.
The RBA statement and SoMP are due at 4:30 am GMT on Tuesday. US July CPI follows Wednesday. UK June GDP and US July PPI are due Thursday.
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