Jobs figures undercut Reserve's attempt to cool hot dollar
The currency surged half a cent to trade just over US102.4¢ late on Thursday, after Bureau of Statistics data showed the unemployment rate had fallen to 5.5 per cent.
Trading at these levels the dollar is back to the value it held just before the central bank's decision on Tuesday to cut the official cash rate.
Economists said the April bounce in the labour force data, which showed the economy had added 50,100 jobs as the participation rate lifted to 65.3 per cent, reduced the likelihood the RBA would step in to cut the rate again in June.
Significantly, weak March employment data was a key factor behind the bank's decision to take the cash rate down to its lowest level in half a century.
But the RBA's decision was also driven by an attempt to take the heat out of a currency that has remained mostly above parity against its US counterpart since early 2011, and which has put the squeeze on export-oriented industries.
Currency strategists said the rebounding Australian dollar reflected the extraordinary circumstances the global economy was facing at this time.
"[The RBA] are well aware that they have spent 18 months cutting rates by 200 basis points and the currency is actually stronger in trade-weighted terms than it was before they started," Westpac senior currency analyst Sean Callow said. "They understand that these are extraordinary times as far as interest rates are concerned and you are not going to get the same response to lower rates that you have in previous eras."
Commonwealth Bank currency strategist Joseph Capurso said the Reserve Bank's approach to the high currency was not to intervene directly but to fuel growth in other sectors not strangled by the dollar.
"What they can do is to cut interest rates so that other industries can make up for their shrinkage," Mr Capurso said.
There were 34,500 new full-time positions, and the economy added 15,600 part-time jobs in April, Bureau of Statistics data showed. In NSW, the jobless rate fell to 5.3 per cent from 5.5 per cent. Victoria's jobless rate rose to 5.8 per cent from 5.7 per cent. The Queensland unemployment rate fell sharply from 5.9 per cent to 5.6 per cent. In South Australia it fell from 5.8 per cent to 5.7 per cent.
Economists had expected the national jobless rate to stay at 5.6 per cent, the highest level since 2009.
National Australia Bank chief executive Cameron Clyne said the multitude of factors keeping the dollar strong meant the capacity to influence its movements was limited.
"There's not much you can do about the dollar," he said. "The reality is even with an interest rate cut [on Tuesday] to a level of 2.75 per cent, that's still substantially above most of the northern hemisphere."
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Better-than-expected April jobs data — showing 50,100 jobs added and the unemployment rate falling to 5.5% — pushed the Australian dollar higher. The currency surged about half a cent to just over US102.4¢ as the stronger labour market reduced expectations of further Reserve Bank (RBA) rate cuts in the near term.
The Bureau of Statistics showed the economy added 50,100 jobs in April, including 34,500 full-time and 15,600 part-time positions. The participation rate rose to 65.3%, and the national unemployment rate fell to 5.5% — stronger than economists had expected (who forecast 5.6%).
Economists said the April bounce in employment and higher participation suggest pockets of strong growth, which reduces the likelihood the RBA will need to cut the cash rate again in June. Stronger labour data can ease pressure on policymakers to provide additional monetary stimulus.
The article notes a high AUD squeezes export-oriented industries by making Australian goods and services more expensive overseas. For everyday investors, that can mean tighter margins for exporters and potential pressure on stocks in those sectors when the currency strengthens.
Westpac’s Sean Callow observed the RBA had cut rates by about 200 basis points over 18 months yet the currency remained strong in trade-weighted terms. NAB chief executive Cameron Clyne said there’s limited capacity to influence the dollar, and Commonwealth Bank strategist Joseph Capurso said the RBA’s approach is not direct intervention but using rate cuts to help other domestic industries grow.
The RBA recently cut the official cash rate to 2.75%, its lowest level in about half a century. Despite that cut, NAB’s Cameron Clyne noted Australia’s rate remained substantially above most northern hemisphere rates at the time, limiting how much cuts alone would weaken the AUD.
According to the Bureau of Statistics data cited, NSW’s unemployment rate fell to 5.3% from 5.5%, Victoria’s rose slightly to 5.8% from 5.7%, Queensland’s fell sharply from 5.9% to 5.6%, and South Australia’s rate fell from 5.8% to 5.7%.
The key takeaway is that stronger-than-expected jobs data can lift the Australian dollar and reduce near-term expectations of further RBA easing, which affects sectors differently. Export-oriented companies can be pressured by a stronger AUD, while other domestic sectors may benefit from lower interest rates if the RBA focuses on supporting non-export industries, as discussed by Commonwealth Bank strategists.
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