Glenn Stevens was very forthright in his analysis of the Australian economy when he made his post monetary policy meeting statement last week. The Reserve Bank of Australia (RBA) had just retreated from a much anticipated interest rate hike due to an unsettling uptick in the previously falling unemployment rate.
The RBA Governor determined that unemployment was set for further increases before the situation improved. He further noted that although the Australian Dollar was at historically high levels it had begun to depreciate and that this would lead provide stimulus enough to assist with the employment correction.
How much things can change in a week. Yesterday’s unemployment data provided a significant positive surprise for the Australian economy. 47,300 new jobs were reported in an economy that had shed over 3,500 jobs just the month before.
It has to be noted that commentators are currently debating the validity of the Australian jobs numbers. New sampling and calculation methods were introduced earlier this year and these have lead econometricians to express concern over the small size of the samples being used.
Despite these concerns over the calculations, the Aussie Dollar is choosing to take the numbers at face value. AUD/USD has gained a full figure since the employment report and is now challenging the psychologically important 0.91 resistance point, a level that it was unable to breakthrough earlier this month.
Notwithstanding the wishes of the RBA, it is highly likely that further appreciation of the Australian currency will be on the agenda over the coming weeks. The abatement of the unemployment problem removes any excuse that the RBA had to hold interest rates at 2.5%. Inflation is at a healthy 2.7%, not far off the long term average of 2.75% that appears to suit the nature of the Australian economy. The concern however is that this 2.7% reflects a 0.5% jump in just one month, that trend if nothing else will force the RBA to hike interest rates at the earliest possible opportunity.
It could well be the May meeting that brings the impending monetary tightening. Given the data quality question it would be prudent for the RBA to wait for further confirmation of the unemployment rate before embarking on an upward rate cycle.
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