David Plank, head of Australian economics at ANZ, points out that the RBA Governor spoke on The Labour Market and Spare Capacity at a CEDA event in Adelaide on 20 June and the critical takeaway from a monetary policy perspective is that the cash rate is heading lower.
Key Quotes
“We already knew this, of course, and the speech does not add much to our understanding of the speed or extent of the coming rate cuts. But clearly there is a very real chance the cash rate is cut in both July and August given the RBA’s assessment that “we are not making any inroads into the economy’s spare capacity.”
“The balance of the Governor’s speech was about how the RBA assesses the “degree of spare capacity in the Australian labour market.” The Governor looked at four perspectives: rates of unemployment and underemployment; the flexibility of labour supply; matching people with job vacancies; and trends in wages growth.”
“The Governor concluded “with a few words on monetary policy.” These conclusions largely repeated comments made previously.”
“Turning back to the body of the speech, he highlighted the strong rise in part-time employment as an important structural shift in the Australian labour market that had implications for the level of labour market capacity. He also noted the improvement in labour supply, ie higher participation. NZ was seen as an important “source of flexibility” on the supply side. While these factors pointed to more slack, evidence of increasing job mismatch was evident with “almost 60 per cent of firms reporting that the availability of labour is either a minor or a major constraint on their business.”
“Finally, wage growth has been subdued. His key conclusion is that “there is still considerable spare capacity in the labour market” with “the one caveat to this assessment [being] the difficulty that some firms are having finding workers with the necessary skills.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD hovers around 1.0700 after German IFO data
EUR/USD stays in a consolidation phase at around 1.0700 in the European session on Wednesday. Upbeat IFO sentiment data from Germany helps the Euro hold its ground as market focus shifts to US Durable Goods Orders data.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold price trades with mild negative bias, manages to hold above $2,300 ahead of US data
Gold price (XAU/USD) edges lower during the early European session on Wednesday, albeit manages to hold its neck above the $2,300 mark and over a two-week low touched the previous day.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.