[LFX]

Australian employment data surprised significantly to the upside. Employment grew by 40,600 jobs in September, way above market expectations for a decline of 10,000. Even better, most of the job gains were in full-time employment and the unemployment rate fell to 5.7%, from 5.8% in August. There are several important takeaways from these data: first, these data are good news for AUD/USD, but given the high level of volatility in the labour force data and the gradual re-introduction of an old sampling method could compound this volatility, the market may discount the strength of the report a little. Therefore, further follow-through in the AUD may be difficult. Second, the data reinforce the RBA's view that its "emergency" rate setting is no longer required, and increases the chances that the RBA may have to move rates back to neutral more quickly. RBA will raise rates another 25bp in November. Third, there is more volatility ahead in these data. Next month, the ABS will re-introduce a particularly large amount of the old sample, about 35% versus the 22% they re-introduced this month.

AUD story has also allowed investors to contemplate the possibility that other smaller G10 countries are emerging from their “states of emergency”, in contrast to G3 that seem deeply mired.