Jobs growth in Australia surged in October, rising by 58,600 and strongly beating expectations of 15,000. This was the biggest gain in 3½ years and took the unemployment rate down to 5.9% from 6.2% in the previous month. There was a 40,000 increase in full-time employment, while part-time employment rose by 18,600. The labor force participation rate increased by 0.1% to 65.0%.
The latest data is an indication that the service sector of the economy is generating more jobs than are being lost in the mining sector, which has been hit hard by the slump in commodity prices. Other sectors of the economy are also performing well with house prices continuing to rise strongly, particularly in large urban areas such as Sydney. Although recently introduced lending restrictions have started to cool the booming property market.
The Reserve Bank of Australia has cut its cash rate twice this year by 0.25% each, bringing the rate down to 2.00%. It has kept policy on hold for the past six months and the likelihood of further cuts have significantly diminished after today’s jobs numbers as it adds to other recent solid data such as domestic consumption growing robustly and consumer and business confidence holding up in positive territory.
Apart from benefiting from low interest rates, a sharp depreciation of the Australian dollar has also helped the non-mining sector. The RBA has been keen to rebalance the economy away from resource-based exports to manufactured goods. But the biggest boost has come from service industries such as financial services, and information media and telecommunications. The tourism sector has also benefited from the weaker aussie.
The Australian dollar jumped over 1% against the US dollar after the data as markets pared back expectations of the RBA cutting rates at its next meeting on December 1. GDP data for the third quarter is due the following day on December 2 and is likely to show a rebound in growth after slowing to 0.2% q/q in the second quarter. However, further rate cuts in 2016 cannot be ruled out given the downside risks posed by a slowdown in emerging market economies and lower commodity prices, as well as the possibility of the aussie starting to appreciate.
The aussie held on to most of its gains in mid-European session, trading at 0.7132 against the US dollar, after climbing from 0.7060 to 0.7144 post the jobs data. Against the New Zealand dollar, the aussie also rallied, reaching a 1-month high of 1.0917 before easing slightly to 1.0885.
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