Australia unemployment declines, Oil under pressure

Australia Jobless rate drops in February below forecasts at 3.5%

By Ahmed Azzam | @3zzamous | 16 March 2023

  • Australia unemployment rate declines to 3.5% in February

  • WTI hits December 2022 lows around $66 amid Credit Suisse crisis

  • Focus falls on ECB monetary policy meeting

What’s happened in the markets?

Australia unemployment rate declined to a 3.5% in February 2023 from January's eight-month high of 3.7% and below market expectation of 3.6%, as the number of unemployed decreased by 16,500 to 507,500. As a result, AUD/USD rose to a new intraday high of 0.6645, as a correction in the USD Index continued.

Meanwhile, WTI prices dropped sharply for three consecutive days, hitting lows not seen since December 2022, reaching around $66 per barrel. The decline was attributed to concerns in the global banking sector that prompted investors to reduce their exposure to risk assets. Turmoil in the banking sector was caused by the failures of Silicon Valley Bank and Signature Bank, and difficulties at Credit Suisse.

Despite this week’s oil performance, OPEC raised its forecast for Chinese oil demand growth in 2023 due to the country's exit from its zero-Covid policy, while the International Energy Agency was optimistic about a boost in oil demand from increased air travel and China's economic reopening after COVID-19 curbs. Saudi Arabia's energy minister, Prince Abdulaziz bin Salman, also stated that OPEC+ would maintain the production cuts agreed upon in October until the end of the year.

What to watch?

The European Central Bank (ECB) is scheduled to hold its meeting today, and it is still anticipated to increase interest rate by 50 basis points (bps) to 3.0%. The main focus of the meeting will be on the guidance for the path of interest rates, as well as comments regarding the risks of a financial contagion stemming from the collapse of Silicon Valley Bank (SVB). The ECB's recent data, including an unexpected increase in core inflation, has caused market pricing to shift towards expecting a terminal rate of 4% by July. This indicates that there is a significant amount of room for the ECB to adjust its policy if financial risks broaden. If the central bank chooses not to provide guidance for another 50bps rate increase in May, it could come as a dovish surprise for the markets.