Aussie Jobs Data Set to Send Traders on Fresh Bond-Buying Binge

(Bloomberg) --

A disappointing jobless print this week may prove the icing on the cake for the Reserve Bank of Australia to cut interest rates again, laying the path for bond yields to drop.

Australia’s benchmark 10-year bond yield has tumbled below the cash rate to a record 0.85% this year as protracted trade tensions and anemic global growth send investors scuttling for cover in haven assets. The nation’s three-year yield -- more sensitive than longer maturities to interest rate moves -- slid to 0.63% in August.

“Jobs are the single most important data point for the RBA, and if unemployment goes up then that’s another reason for the central bank to cut,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd. “A bad jobs number could push 10-year bond yields down another 10 basis points from here.”

While yields globally have edged higher in September amid a glut of bond sales and signs of cooling trade tensions, money markets are still pricing in over a quarter of a percentage point cut by the RBA by December, followed by another in June.

National Australia Bank Ltd. reckons the central bank could cut interest rates three more times and adopt unconventional monetary policies to combat rising risks at home and abroad. Australia and New Zealand Banking Group Ltd. sees the cash rate dropping to 0.25% by May from its current 1%, while AMP’s Oliver is forecasting another half a percentage point of easing by December, particularly if the jobless rate remains elevated.

Jobs Conundrum

Economists surveyed by Bloomberg forecast the August unemployment rate to come in at 5.2% when it is published on Thursday. That would be unchanged from July and well short of the 4.5% level the RBA considers necessary to reignite inflation.

“Unfortunately for the RBA, the labor-market figures haven’t been strengthening as they expected and we’ve seen downgrades to the outlook for the unemployment rate,” said Kerry Craig, global market strategist at JPMorgan Asset Management. “An unemployment rate that starts heading north would suggest further easing.”

Below are the key Asian economic data and events due this week:

--With assistance from Stephen Spratt.

To contact the reporter on this story: Ruth Carson in Singapore at rliew6@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Brett Miller, Liau Y-Sing

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