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Australia's employment grew modestly in October, rising by 15.9k or 0.1% mom, falling short of the anticipated 25k increase. This represents the slowest pace of employment growth in recent months, following a period of more robust gains averaging 0.3% per month over the last six months. Full-time positions rose by 9.7k, while part-time jobs increased by 6.2k, both contributing to the incremental rise.

Unemployment rate remained steady at 4.1%, matching expectations, although the participation rate saw a slight dip from 67.2% to 67.1%. The number of unemployed rose by 1.3% mom, adding 8.3k to the job-seeking pool. In terms of labor utilization, monthly hours worked inched up by 0.1% mom, reflecting only minimal expansion in total labor demand.

This marks the third consecutive month with an unemployment rate of 4.1%, which stands 0.6% points higher than June 2023 low of 3.5%. Nonetheless, this rate remains 1.1% below the pre-pandemic level of 5.2% in March 2020.

The deceleration in employment growth could indicate a stabilizing labor market, aligning with recent RBA commentary on maintaining a restrictive policy stance until clear demand cooling is observed.

Full Australia employment release here.

RBA Governor Michele Bullock commented at a panel discussion today on Australia's economic and labor market conditions, noting that the economy is still operating at a level that risks fueling inflation.

According to Bullock, while labor market tightness has eased slightly, “it’s still not easy to get staff,” indicating persistent hiring challenges for businesses.

Bullock attributed the resilience in the job market to strong "demand" and "population growth". These factors, she noted, continue to support employment levels despite some easing in labor market constraints.

Comparing RBA’s policy stance with other central banks, Bullock remarked that while others have already moved to lower rates, RBA remains "not as restrictive."

Nevertheless, she emphasized that the bank considers its policy "restrictive enough" to address inflation risks and is committed to maintaining this stance until there’s clear evidence of a sustained "downward trajectory in demand."

St. Louis Fed President Alberto Musalem stated in a speech overnight that he expects inflation to converge toward the Fed's 2% target over the medium term. His baseline scenario anticipates a cooling labor market that remains within the range of full employment, alongside moderating compensation growth.

Musalem emphasized that this outlook depends on monetary policy staying "appropriately restrictive" while inflation exceeds 2%, a situation that would allow Fed to "judiciously and patiently" continue lowering interest rates.

However, Musalem expressed concerns that recent information indicates the risk of inflation failing to converge toward 2%, or even moving higher, "has risen."

Simultaneously, he noted that the risk of an unwelcome deterioration in the labor market "has remained unchanged or possibly fallen."

Although he is "attuned to the possibility of rising layoffs going forward," Musalem believes the overall strength of the economy "provides some confidence that a disorderly labor market deterioration is unlikely."

Kansas City Fed President Jeffrey Schmid highlighted overnight Fed’s confidence that inflation is on track to reach its 2% target, attributing this progress to "signs that both labor and product markets have come into better balance in recent months."

Schmid acknowledged that conditions are right to begin easing the Fed’s restrictive monetary policy but stressed that "it remains to be seen how much further interest rates will decline or where they might eventually settle."

He added that sustained gains in productivity could enable the economy to grow robustly without significant inflation. However, Schmid cautioned that economic growth could be dampened if the energy supply fails to meet the increasing demands, such as those driven by AI development.

“As an optimist, my hope is that productivity growth can outrun both demographics and debt," yet as a central banker, he remains committed to the Fed’s dual mandate, ensuring price stability and full employment, guided by data.

• USDJPY broke key resistance level 154.70
• Likely to rise to resistance level 157.20

USDJPY currency pair recently broke the key resistance level 154.70 (former stern support from June, which has been reversing the price from the end of July).

The breakout of the resistance level 154.70 should accelerate the active medium-term impulse wave (5) from the start of November.

Given the clear daily uptrend and the bullish US dollar sentiment, USDJPY currency pair can be expected to rise to the next resistance level 157.20.

• WTI crude oil reversed from the multi-year support level 66.70
• Likely to rise to resistance level 70.00

WTI crude oil recently reversed up from the powerful multi-year support level 66.70 (which has been repeatedly reversing WTI from the end of 2021, as seen from the weekly WTI chart below).

The support level 66.70 was strengthened by the nearby lower daily and the weekly Bollinger Bands.

Given the strength of the nearby support level 66.70 and the bullish divergence on the weekly Stochastic indicator, WTI crude oil can be expected to rise to the next resistance level 70.00.

Dallas Fed President Lorie Logan emphasized today that while additional rate cuts will likely be necessary, "it’s difficult to be sure how many cuts may be needed and how soon they may need to happen.”

Logan also reiterated that the “neutral” rate—the level at which the interest rate neither stimulates nor restricts the economy—may be higher than initially estimated.

She suggested that the current rate is close to this neutral level, though precise measurement is challenging.

Minneapolis Fed President Neel Kashkari conveyed optimism about the current direction of inflation but emphasized the importance of waiting for additional economic data before making any policy changes.

Speaking to Bloomberg TV shortly after release of October CPI, Kashkari mentioned that although he hadn't yet examined the details, the headline figures reinforced his confidence that inflation is moving favorably.

"I think that inflation is headed in the right direction. I’ve got confidence about that, but we need to wait,” he said. “We’ve got another month or six weeks of data to analyze before we make any decisions.”

• USD/CAD surges as oil prices decline and US Dollar rises.
• Market anticipates less rate cuts in 2025 due to Trump’s return, impacting interest rate differentials.
• Potential US tariffs add headwinds for the Canadian Dollar.

USD/CAD has been on a tear since the back end of September, rising some 550 pips over the past 6 weeks. The move coincided with a stronger US Dollar and weaker Oil prices.

Oil Continues to Weigh on the Canadian Dollar

The Canadian Dollars struggles since the back end of September have coincided with a weaker Oil price. Oil prices have faced significant headwinds over the past few months as expectations around demand continue to be downgraded. Just yesterday OPEC announced its fourth consecutive downgrade to its demand forecasts, with China cited as the primary reason.

Interest Rate Differentials Coming Into Play?

The US Election is out of the way and with Donald Trump scheduled to return to the White House on January 20, 2025 markets are already pricing in less rate cuts in 2025. This has left the possibility of interest rate differential coming into play.

As things stand, markets are pricing in around 77 bps of cuts by the Fed and around 91 bps from the Bank of Canada. This leaves the Canadian Dollar in a vulnerable position as Trump is yet to take office. If President Elect Trump moves forward with tariffs and inflationary risks do rear their head, the rate differential could widen adding further headwinds for the Canadian Dollar.

On Tuesday, Neel Kashkari, the President of the Minneapolis Fed, said the central bank is still confident in fighting temporary inflation, but it’s too soon to say they’ve completely won. He also mentioned that the Fed won’t predict how Trump’s policies will affect the economy until they have more details about those policies.

The calendar is quiet this week from Canada but today we just had US Inflation data which came out in line with forecasts. The impact was rather muted but it did firm up rate cut expectations for the Fed at the December meeting.

Technical Analysis

USD/CAD has been consolidating for the last two trading weeks in a 100 pip range between the 1.3850 and 1.3950 handles.

Historically USD/CAD tends to follow up periods of consolidation with significant swing moves in either direction. This means that USD/CAD could be poised for a significant breakout in the days ahead.

The 1.4000 handle remains elusive at this point and given that US Inflation barely moved the needle, the case for a retracement before a push toward the 1.4000 handle looks appealing. However, any pullback may be seen as an opportunity for would be bulls to get involved.

Immediate support rests at 1.3900 before the 1.3854 and 1.3793 come into focus.

Conversely a break above recent highs at 1.3956 could finally open up a break of the psychological 1.4000 barrier with resistance resting around the 1.42500 handle.

USD/CAD Daily Chart, November 13, 2024

Source: TradingView (click to enlarge)

Support

• 1.3900
• 1.3854
• 1.3793

Resistance

• 1.3958
• 1.4000
• 1.4250