Unemployment rises: Rate cut on the cards?

Will homeowners rejoice next month?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australia’s unemployment rate has remained steady at 5.8% in December, despite the unemployed level rising by 8,000.

But the Australian Bureau of Statistics data saw the Australian dollar dive. 31,600 full-time jobs were lost, while the part-time employed increased by 9,000. The dollar fell to US88.18 cents earlier in the day – its lowest level since 2010 – according to the Australian Financial Review (AFR).

It seems currency traders have reduced expectations that the Reserve Bank will increase interest rates beyond its current levels of 2.5%.

Not that there was really much chance of that happening anyway.

If the RBA increased interest rates, it could see the Australian dollar rise – something the RBA doesn’t want, and could stall a recovery in the non-mining sections of the economy – another problem the RBA doesn’t need.

Australia’s participation rate fell slightly to 64.6% of the population – it’s lowest level since February 2005. Westpac economist Justin Smirk has told the AFR that if not for the fall in the participation rate, Australia’s unemployment rate would have risen to 6.1%.

Next week’s inflation data is not expected to fall outside the RBA’s target range of between 2 to 3%, thanks to the Australian dollar falling from parity with the US dollar in May 2013.

Therefore, the most likely move by the RBA is for interest rates to be left on hold in February, and possibly for some time yet. But still, further weak economic data, and a high Australian dollar could see the Australian central bank forced to cut rates.

In fact, Westpac Banking Corporation’s (ASX: WBC) Bill Evans is still predicting one more rate cut. But that could also place additional pressure on our big four banks, who may not want to cut mortgage rates further.

Ratings agency Fitch Ratings yesterday warned that a weakening economy and increased competition could create challenges for Australia’s big four banks, including Westpac, ANZ Bank (ASX: ANZ), Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB).

Foolish takeaway

While it’s seems likely that the RBA will leave rates on hold in February, nothing is yet set in stone.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »