Australian dollar tumbles after unexpected jump in jobless rate

Office workers in Brisbane, Australia.
Office workers in Brisbane, Australia.PHOTO: BLOOMBERG

SYDNEY (REUTERS, BLOOMBERG) - The Australian dollar tumbled on Thursday (Feb 18) after a disappointing jobs report fueled doubts about whether the central bank is done cutting interest rates.

Thursday's (Feb 18) data from the Australian Bureau of Statistics showed a net 7,900 jobs were lost in January, when analysts had looked for a rise of around 15,000. All the decline came in full-time employment which fell 40,600.

The jobless rate ticked up to 6 per cent, when analysts had expected a steady outcome of 5.8 per cent.

The report sent the Aussie tumbling 0.5 per cent to 71.48 US cents at 9:51 am in Tokyo, after surging 1 per cent to 71.85 on Wednesday in the biggest gain since Feb 3.

Against the Singapore currency though, the Aussie strengthened a little. One Singdollar was trading at 99.41 Aussie cents as at 10:28 am on Thursday, down 0.2 per cent from its close of 99.64 cents on Wednesday.

The Reserve Bank of Australia (RBA), which left interest rates unchanged at a record low this month, has cited the past strength of employment as a major reason for not cutting interest rates even as the global outlook was clouded by a slowdown in China and turmoil in financial markets.

"The employment data falling below forecast prompted some short-term players to take profits," said Masafumi Yamamoto, chief currency strategist in Tokyo at Mizuho Securities Co. "The data raised question about the recent optimism about the country's good labor market and weighed on the currency. But it's too early to say whether this will prompt the RBA to consider cutting rates."

Indeed, even with the latest dip Australia still created a net 298,000 new jobs in the year to January. Annual employment growth held at a strong 2.6 per cent, beating even that of the United States.

Policymakers have confessed to being surprised by the strength given the economy was growing at around a sub-par pace of 2.5 per cent. Many felt the answer lay in the brisk growth of the service sector, which is more labour-intensive than mining or manufacturing.

Hiring in services surged by more than 350,000 in the year to November, with healthcare alone accounting for 151,000.

"Since the financial crisis, health has generated nearly one-third of jobs growth and around 40 per cent of the increase in total hours worked in Australia," said Mr Justin Fabo, a senior economist at ANZ.

He offered a laundry list of reasons for why that was likely to continue including an ageing population; more frequent use of health services by all age groups; rising incidence of chronic disease; increased spending on disability care and strong demand for childcare.

For its part, the RBA has stated it will be watching closely to see if employment sustained its outperformance and analysts suspect any turn to weakness could greatly add to the chance of a further cut in rates.