ING analyst Francesco Pesole highlights potential downside risks to Australia's March employment data, with consensus expectations set at a +20,000 increase in payrolls. Pesole notes that this figure may be optimistic, given recent trends where negative employment readings have followed periods of positive data. He anticipates the unemployment rate could rise slightly from 4.3% to 4.4%, assuming the participation rate remains unchanged. This potential uptick in unemployment is not expected to reflect war-related effects but may indicate a modest softening in labor market momentum ahead of the conflict period [1].
Despite these risks, Pesole does not believe a softer jobs report would be sufficient to prevent the Reserve Bank of Australia (RBA) from implementing a rate hike in May. He observes a sense of urgency among policymakers, with ING's base case favoring a May hike over a delay until August. The RBA's focus remains on inflation expectations and the need for further tightening [1].
Looking at the Australian dollar, Pesole argues that AUD/USD retains solid upside potential, even when accounting for risks of re-escalation. He suggests that a peace deal could bolster exports and improve risk sentiment, benefiting the AUD. However, he cautions that such a deal would not necessarily result in a return to pre-war energy prices, which could continue to support stronger export prices for Australia [1].
CONCLUSION
ING expects the RBA to proceed with a May rate hike despite potential softness in March employment data. The outlook for AUD/USD remains positive, supported by export dynamics and risk sentiment, even as labor market momentum shows signs of easing.