Jobs growth takes swipe at effort to keep a lid on rising dollar
The currency surged half a cent to trade at just over US$1.024 late on Thursday, after Bureau of Statistics data showed the unemployment rate had fallen to 5.5 per cent.
At these levels the dollar is back to the value it held just before the central bank's decision on Tuesday to cut official cash rates.
Economists said last month's 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 that the RBA would step in to cut rates again next month.
Significantly, it was weak March jobless figures that were a key factor behind the central bank's decision to take the cash rate down to its lowest level in half a century.
But the Reserve Bank'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 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."
There were 34,500 new full-time positions and the economy added 15,600 part-time jobs last month, Bureau of Statistics data shows. In NSW, the jobless rate fell to 5.3 per cent from 5.5 per cent.
Frequently Asked Questions about this Article…
April's labour-force data showed the unemployment rate fell to 5.5%, and the Australian dollar jumped about half a cent to trade just over US$1.024. Stronger-than-expected jobs numbers undermined efforts to push the currency down and pushed it back to levels seen before the RBA's recent cash-rate decision.
The RBA cut the official cash rate partly in response to weak March jobless figures and also to take the heat out of a relatively strong Australian dollar, which had been mostly above parity against the US dollar and was squeezing export industries. That cut took the cash rate to its lowest level in about half a century.
Yes. Economists said the bounce in the labour-force data reduced the likelihood that the RBA would step in to cut rates again next month, because improved employment weakens the case for immediate further easing.
The participation rate lifted to 65.3%, and economists noted a prior monthly bounce that showed the economy had added about 50,100 jobs as participation increased. Rising participation alongside job additions is a sign the labour market was stronger than feared.
The Bureau of Statistics data showed the economy added 34,500 new full-time positions and 15,600 part-time jobs in the month covered. In New South Wales specifically, the jobless rate fell to 5.3% from 5.5%.
A stronger Australian dollar can squeeze export industries by making Australian goods and services more expensive overseas. The article notes the currency's strength has been a pressure point for exporters, which is an important consideration for investors with exposure to export-focused companies or sectors.
Westpac senior currency analyst Sean Callow said the RBA has already cut rates by about 200 basis points over 18 months, yet the currency is stronger in trade-weighted terms than before those cuts. He suggested these are 'extraordinary times' for interest rates, so you may not get the same response to lower rates as in previous eras.
Investors should monitor upcoming RBA decisions, further labour-force releases (unemployment and participation rates), and movements in the Australian dollar. Those indicators will influence interest-rate expectations, export sector performance, and broader market sentiment.
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