Brandt's Biggest FX Bet Is Short EUR/JPY as Yen Strengthens
Peter Brandt's firm holds its largest futures and FX position in a short EUR/JPY trade as the yen gains on intervention and rate expectations.
Australian employment fell 39,300 in September and unemployment held at a five-year high of 4.7%, prompting traders to trim their RBA hike bets.
The debate at the Reserve Bank is no longer about when the next hike will come but whether it happens at all, and a pause now looks the more likely near-term outcome. The Australian dollar is consequently out of line with the rest of the market. Gold and the major currencies have gained against the US dollar as Treasury yields ease, while the Aussie has remained near the levels touched right after the data, since the narrowing outlook for domestic rates is offsetting broader dollar weakness. Further underperformance of the Australian dollar is probable on crosses such as AUD/NZD and AUD/JPY should investors continue to scale back their RBA hike expectations. The volatility in the numbers means the next jobs report, along with the RBA's revised forecasts in November, will carry additional significance.
The September jobs report was a weak one, and the market's willingness to price a November RBA increase largely disappeared with it.
Summary:
Traders pulled back on expectations of another Reserve Bank of Australia rate increase after September employment unexpectedly fell and the jobless rate held at a five-year high of 4.7%.
Figures released Thursday by the Australian Bureau of Statistics put the monthly fall in employment at 39,300, far below the roughly 20,000 gain that had been predicted. The prior month's gain was trimmed to 29,300. Part-time work accounted for the entire decline, with a 73,700 drop that was the worst in five years, while full-time jobs rose 34,400.
The jobless rate came in at 4.7%, above the 4.6% that had been expected. August's figure was revised up to 4.7% from 4.6%, though by a slim margin: unrounded, the rate was 4.72% in September versus 4.65% in August. A sharp fall in participation, to 66.8% from 67.1% against an expected 67.0%, dampened the rise in unemployment, since fewer people were looking for work. Hours worked gained 0.1%, and the underemployment rate ticked higher to 6.3%.
The ABS cautioned against reading too much into the seasonally adjusted numbers, citing continued volatility. The timing is awkward for the RBA, which uses the employment data to gauge how tighter policy is affecting the economy. The full-time/part-time split and the participation swings have both been erratic from month to month.
Still, the underlying trend is softer. Unemployment averaged 4.6% in the quarter, well above the RBA's forecast, so the bank is likely to revise its projections up at the November meeting. With a dual mandate of price stability and full employment, a weaker jobs market tilts the risks around further tightening toward balance.
Markets were quick to respond. The probability assigned to a November RBA hike declined, and a move before the first half of 2027 is no longer favoured. Three-year Australian government bond yields fell roughly 10 basis points.
The Aussie slid on the data and has remained close to its post-release lows, a contrast with gold and most major currencies, which have climbed as Treasury yields declined.
The RBA's calendar for the year still has two more meetings to come.
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Peter Brandt's firm holds its largest futures and FX position in a short EUR/JPY trade as the yen gains on intervention and rate expectations.
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