Listen to Lowe for clues to RBA plans Listen to Lowe for clues to RBA plans Listen to Lowe for clues to RBA plans

Listen to Lowe for clues to RBA plans

Macro 5 minutes to read

Summary:  The Reserve Bank of Australia’s June meeting is likely to be an even closer call than the May meeting in terms of whether the central bank will move to cut the official cash rate.

Having eschewed traditional indicators of economic health including flat CPI, languishing GDP growth (even negative on a per capita basis), the slumping property market and sagging business surveys, the RBA has explicitly tied the outlook for monetary policy to the developments in the labour market, which is a volatile data print at best.

The central bank has remained optimistic that the labour market will strengthen, and inflation will return to its target range, allowing it to sit on its hands despite continuously missing its 2%-3% inflation target range over the past three years, in addition to tepid wage growth and heavily overleveraged Australian households struggling under the weight of a declining property market.

So, with the spotlight on jobs, last week’s notoriously volatile April employment data was crucial to the outlook for monetary policy. And whilst unemployment rose to 5.2%, the highest level since August 2018, the report wasn’t all bad; employment rose by 28,400 vs. 15,000 expected, employment growth picked up from 2.44% to 2.58% on an annual basis and participation is now at record highs as a percentage of the working age population.

The driving force behind the pickup in unemployment was for “good” reason. The participation rate refers to the total number of people who are currently employed or in search of a job (the labour force) as a percentage of the working age population. This means the uptick in unemployment reflected the increasing size of the labour force. The latter is generally good for the economy more broadly but not so good for stimulating wage price pressure to materially boost wages as the increasing labour force size is outpacing actual hiring.
On the subject of wage growth, if we unpick the data further, spare capacity remains an ongoing issue for the RBA, preventing material upward pressure on wages. This is especially problematic for overindebted Australians battling a negative wealth effect inability to maintain spending in an economy heavily reliant on consumption (historically around 60% of GDP), and pervasive weak inflation trending in the wrong direction.

Underutilisation is a broader measure of spare capacity than the unemployment rate and this picked up from 13.3% to 13.7%. Underemployment (those employed but wanting to and available to work more hours), another measure of labour market slack, also rose from 8.2% to 8.5%, meaning nearly 2 million people in Australia have work but want to work more hours. Combine stagnant wage growth, labour market slack and an economy heavily reliant on private consumption and you have an ugly cocktail for sub-trend economic growth and underwhelming activity.
This means tomorrow will be an important day for RBA watchers, Governor Lowe’s speech could be vital in resolving the current confusion surrounding the central bank’s reaction function – a lack of clarity from the RBA that has left market participants second guessing whether the goalposts for a rate cut have shifted. Governor Lowe’s speech titled "The Economic Outlook and Monetary Policy" will be crucial to gauge the goalposts for rate cuts given Lowe has previously used speeches to provide monetary policy guidance (February).  The minutes of last week’s May monetary policy meeting will also be released on the same day, so current ambiguity surrounding the begrudging easing bias could be rectified in the minutes also.
By year end we are likely to have seen 50 basis points of cuts from the RBA, but the timing of these cuts is uncertain, hence the importance of tomorrow's speech. The RBA to date remains too optimistic about the domestic outlook and easier monetary policy may be unavoidable if the weakness in leading indicators of labour market demand are to be believed. Governor Lowe will likely signal that the bank's finger is on the rate cut trigger, but the RBA will hold off on pulling that trigger until at least July.

Given that unemployment has now risen from 4.9% to 5.2% and spare capacity also picked up if the RBA wanted to cut in June, it could justify that move. Several leading indicators are pointing to a slowdown in hiring ahead; ANZ job ads, the NAB business survey employment index, capacity utilisation, SEEK job ads also contracted 10% in April. 

But the RBA is behind the curve and has shown its hand in not being pre-emptive, given that it has been so reluctant to ease it is likely it will need two or three months of labour market data to confirm the trend after robust employment growth in Q1 and record levels of participation.

On that basis cuts are unlikely to be imminent, given that labour market data is notoriously volatile. The standard error on the change in employment each month is around ±30,000, therefore labour market data’s inherent volatility means a reluctant central bank will require consistent data deterioration to cut rates. By that time, flagging growth momentum and the weakness pointed to by several leading indicators may have caught up with the labour market already. So with rate cuts likely an inevitability we await Governor’s Lowe's speech tomorrow for clarity on timing.


The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.