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Forex News – Australian December employment report disappoints, drives aussie to 3 ½ year low
January 16, 2014 12:53 pmVideo
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Today’s employment report for Australia during December contained some negative surprises for analysts. Instead of creating around 7,500 jobs during the previous month as economists had expected, the Australian economy actually shed 22,600 jobs. The job losses were the biggest since March of 2013, when the economy lost 33,800 jobs. November’s employment gains were also downwardly revised to 15,400 compared to 21,000 originally reported.
It should be noted of course that despite the significant job losses, the unemployment rate remained constant at 5.8%. This was achieved because of a decline in the participation ratio from 64.8% of the population in November to 64.6% in December. This was a worrying development as it was the lowest participation rate since March 2006.
The unemployment rate itself, while it is still the envy of many other advanced economies at 5.8%, is at relatively high levels for Australia. It was only higher than the current level during the immediate aftermath of the financial crisis of 2008, when it peaked at 5.9% in June of 2009. It is therefore near the highs of the decade. According to some commentators, if the unemployment rate reaches 6%, it might force the Reserve Bank of Australia to take some action in the form of lower interest rates.
Indeed following the announcement , the market started pricing in a 50% probability of a quarter-point interest rate cut before the autumn of this year. It is also expected that the weak employment report will encourage the Reserve Bank to talk down the Australian dollar even more. Driving the currency lower should not be hard if the US dollar has a strong year as many expect.
According to the IMF, Australia is estimated to have grown by 2.5% during 2013, while the country is expected to accelerate to 2.8% growth in 2014. Therefore the Australian economy is performing relatively well and there is optimism that the prospects for the jobs market could improve in coming months.
In the immediate aftermath of the announcement, the aussie dropped one whole cent against the US dollar; from around 0.8905 to 0.8806. The Australian dollar had already been under pressure as a result of US dollar strength and worries about China’s economic outlook during the previous days. The Australian dollar was one of the biggest losers of 2013 and it will be interesting whether it will do better during 2014 given the headwinds.
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