Australian jobless rate unchanged for now

Australia’s jobless rate didn’t rise to 5.5% as the consensus was expecting, but it didn’t improve either – remaining unchanged at 5.4%. The composition was not the best - full time employment fell by 9,800 positions while the participation rate fell slightly. Total job growth was 10,400 but part timers were again the swing factor.

The number is unlikely to please the Reserve Bank of Australia (RBA) and there will be more cause for caution than optimism despite global risk sentiment rising.

With inflation at the bottom end of the 2-3% RBA target range and the job market unlikely to improve anytime soon, the RBA is increasingly likely to move through one more rate cut in the next two months. Yesterday’s retail numbers showing a modest decline should also reinforce this move. The market is still split on timing but for us there are only two things that really matter for the RBA – inflation and employment.

With the later looking vulnerable, the RBA knows it’s perhaps worth risking one more move downward before changing course by the end of 2013 – the rate of inflation is not too high enough for the rate cut risk to be too great. It’s a fairly low risk move in terms of inflation breaking out.

We’ll monitor the rest of the economy and other macro data over the next few weeks. At this stage, a 25 basis point cut in March is probably a 50% chance for us. Currency traders are starting to think likewise with the Australian dollar struggling to hold ground against the US dollar, last buying around 103 US cents. The Aussie has also slipped slightly against the Yen but the upward trend seems in place for now.

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