A massive surge in employment if February has driven the Australian dollar higher, and rendered the chances of a rate cut in the next month or two, if not this year by the RBA, at between none and zero.
The number of people employed rose by 71,500 in February compared to January, while the unemployment rate was steady at 5.4%, according the data from the Australian Bureau of Statistics (ABS).
In percentage terms, it was the biggest gain since September 2004, and nine times the average of the preceding six months. Economists were expecting a rise of around 10,000 and the unemployment rate to rise to 5.5%, and several commentators have shaken their heads at the numbers, suggesting the data could be wrong, and was likely to be revised down next month.
The fact that 75% of the increase was due to increased part-time employment, with 53,700, while just 17,800 found full-time employment suggests the numbers are not as good as they seem. Part-time employment, according to the ABS, includes those who have been forced to work part-time, because they can’t find full-time work.
The share market certainly didn’t like it, as it gives the Reserve Bank a power incentive to not cut the official cash rate any time soon. Generally, cuts to the cash rate are seen as positive for the stock market, while a rise in official interest rates is negative.
The S&P ASX 200 index (Index: ^AXJO) (ASX: XJO) fell by 1.2% with much of the fall coming after the jobs data was released at 11.30am AEST. Of the majors, Macquarie Group (ASX: MQG) slipped 2.5%, while AMP Limited (ASX: AMP) fell 1.9% and Brambles Limited (ASX: BXB) lost 2.1%, while the big miners were also hit by a triple whammy of the spike in the Australian dollar, falling iron ore prices and news that China was clamping down on property investment – which is likely to reduce demand for steel, and hence iron ore.
The Australian dollar surged higher, rising more than half a cent and is currently buying around US 103.7 cents.
Economists and the market appear to have abandoned all hopes of further rate cuts this year, with several suggesting the next change could be an increase in official cash rates. That is of course, unless we see a strong correction to job numbers next month.
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