Australian Dollar: Labor data seen reinforcing RBA pause – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad expects Australia’s June labor force report to show a modest 15k job gain and unemployment steady at 4.4%, slightly above the Reserve Bank of Australia's (RBA) projection. Futures imply a 60% chance of one final 25 bps hike to 4.60%, but Haddad sees risks skewed toward a longer pause, citing below-potential Gross Domestic Product (GDP) growth and a cash rate already near the top of neutral estimates, weighing on Australian Dollar (AUD).

Jobs report and neutral rate cap upside

"The economy is projected to add +15k jobs vs. +40.3k in May and the unemployment rate is seen unchanged at 4.4% for a second straight month."

"That would be marginally higher than the RBA’s June unemployment rate projection of 4.2% and support the case for an extended pause to the bank’s tightening cycle."

"First, the RBA projects real GDP growth to be below potential over the next two years. Second, the RBA cash rate at 4.35% currently sits near the top of the range of model-based central estimates of the nominal neutral rate."

"RBA cash rate futures imply 60% odds of one final 25bps hike by year end to 4.60%. In our view, the risk is skewed towards a more extended pause in the RBA tightening cycle which is a headwind for AUD."