Dollar boost despite poor jobs outlook
The local currency was trading below US91¢ on Thursday morning, but lifted to above US93¢ later in the day as the US dollar rallied across the board after Federal Reserve chairman Ben Bernanke committed to an easy monetary policy stance.
The dollar was buying US92.34¢ late Thursday.
The sharp lift against the US dollar was not hampered by Bureau of Statistics data on Thursday showing a rise in the Australian unemployment rate by 0.1 per cent to 5.7 per cent.
It reflected the currency's sensitivity to international factors, but also showed that local markets had already expected a weaker jobs report amid the recent spate of soft economic data pointing to fewer job ads and weak business conditions. "The unemployment rate has been on a clear, gradual rising trend over the last year," Nomura economists Charles St-Arnaud and Martin Whetton said.
"It is notable that in April 2012 it was only 5 per cent, confirming a sharp deterioration of the labour market over that period."
While economists said the higher jobless rate cemented the case for an August cash rate cut, financial markets had not fully priced in a further easing in monetary policy as they were awaiting second-quarter inflation figures, which will be released on July 24.
Markets were pricing in a 64 per cent chance of a 25 basis cut next month, the highest odds possible without the key data, UBS interest rate strategist Andrew Lilley said.
"As a general rule, if a cut is more than two-thirds priced, it's about 90 per cent likely to happen," Mr Lilley said.
"The economic outlook for Australia is looking weak enough for a cut in the demand sense. We're just looking for some further weakness in the price data to get confirmation of that, which would kickstart the RBA back into gear."
Although the economy added 10,400 new jobs in June, the positions came from part-time employment, which rose by 14,800 as full-time employment dropped by 4400. The full-time unemployment rate lifted to 6.1 per cent, the highest since the financial crisis.
Moody's Analytics associate economist Katrina Ell said business caution, as reflected in ANZ's job ads series and NAB's business survey this week, had seen them hold back on adding staff, while favouring part-time positions.
The latest jobless figures were also catching up with Australia's below-trend economic growth and its struggles as it moves away from mining-led growth as resources investment peaks.
"There's still a big structural adjustment task going on and those numbers suggest that the economy is still struggling with that task," National Australia Bank's head of Australian economics, Rob Brooker, said.
The state-by-state breakdown of the unemployment rate reflected the shift away from mining, Deutsche Bank senior economist Phil O'Donaghoe said, highlighting the change between services-oriented NSW and mining-dependent Western Australia.
NSW recorded a 2.3 per cent employment growth in the year to June, outstripping the 1.5 per cent growth in WA. Queensland, another mining state, only reported an increase of 0.4 per cent over the year. Victoria's employment growth came in at 1 per cent.
But analysts said a rise in the national participation rate by 0.1 per cent to 65.3 per cent was encouraging, and that the greater number of jobs created this year compared with last year meant the economy was not in dire straits.
"Taking a step back from the monthly detail, in the past six months there have been more than 17,500 jobs created each month, up from a rise of more than 9000 jobs each month in the second half of 2012," HSBC chief economist for Australia Paul Bloxham said.
Economists have said the rising population meant the economy needed to add 17,000 jobs a month, with participation unchanged, for the jobless rate to remain stable.
Frequently Asked Questions about this Article…
The article notes the Australian dollar lifted above US93¢ (buying US92.34¢ late Thursday) despite weaker local jobs data. Markets were reacting to international factors — including Federal Reserve chairman Ben Bernanke's commitment to an easy US monetary policy — and had already anticipated a softer jobs report, so the currency moved higher even as unemployment rose to 5.7%.
June added 10,400 jobs, but most were part‑time (up 14,800) while full‑time employment fell by 4,400. The overall unemployment rate rose 0.1 percentage point to 5.7%, and the full‑time unemployment rate reached 6.1% (its highest since the financial crisis). For investors, this signals a softer labour market that could influence interest rate expectations, consumer spending and sectors sensitive to employment trends.
Economists in the article said the higher unemployment strengthens the case for an August cash rate cut by the Reserve Bank of Australia (RBA). However, markets were waiting for second‑quarter inflation figures (due July 24) before fully pricing in further easing. UBS noted markets were pricing about a 64% chance of a 25 basis‑point cut next month.
The key item highlighted is the second‑quarter inflation figures to be released on July 24. Inflation data will be important for confirming whether the RBA will ease policy further. Investors should also monitor ongoing job ads and business survey signals (ANZ job ads, NAB business survey) for signs of hiring trends.
The rise in part‑time employment alongside a drop in full‑time roles suggests businesses are cautious — hiring fewer full‑time staff and favouring more flexible, part‑time positions (a point made by Moody's Analytics). For investors, this can mean slower wage growth and weaker household incomes, which can weigh on consumer spending and affect retail, housing and cyclical stocks.
The state breakdown showed stronger employment growth in services‑oriented NSW (2.3% year to June) compared with mining‑dependent WA (1.5%) and weaker growth in Queensland (0.4%). This reflects the shift away from mining‑led growth as resources investment peaks. Investors may consider these regional differences when assessing exposure to mining, construction and services sectors.
The national participation rate rose 0.1 percentage point to 65.3%, which is encouraging because it means more people are looking for work. That can push up the unemployment rate even if jobs are being created. Analysts said the economy has been creating more jobs recently (over 17,500 per month in the past six months), so participation and population growth are key to understanding whether unemployment is stabilising.
Markets were pricing about a 64% chance of a 25 basis‑point cut next month, according to UBS. UBS's strategist noted that if a cut is more than two‑thirds priced in it’s typically about 90% likely to happen. For investors, higher odds of an RBA rate cut can affect fixed‑income yields, bank margins, property sentiment and currency moves — so portfolio positioning may need to account for a lower‑rate environment.
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