Standard Chartered’s Nicholas Chia argues that softer Australian labour data and activity indicators support the view that the Reserve Bank of Australia has likely peaked its cash rate at 4.35%. The bank highlights rising unemployment, weaker PMI and moderating wage growth, and sees a high bar for further hikes, with potential easing only if activity deteriorates sharply.

Softer labour data ease RBA pressure

“Australia’s unemployment rate rose 0.21ppt to 4.49% in April, the highest since late-2021. This follows the May decline of the flash services PMI (47.7) into contractionary territory, and Q1 wage growth easing to 3.3% y/y, in line with the Reserve Bank of Australia’s (RBA’s) latest forecast.”

“That said, we are wary of characterising the labour market as ‘breaking’, given that April is only one data point and monthly hours worked were still up 0.8% m/m seasonally adjusted (SA).”

“The April labour market report supports our view that the RBA’s cash rate may have peaked at 4.35%.”

“We see a high bar for the RBA to hike rates further absent a re-acceleration in demand and given the government’s fiscal restraint in the latest budget.”

“Any sharp deterioration in economic activity – while not our base case – may even lead the RBA to contemplate unwinding some of this year’s policy tightening.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)