Employment numbers to drive Aussie dollar direction

<p>In late February we highlighted March 14 as key to the Aussie dollar’s direction, saying the RBA would probably hold in March and await February […]</p>

In late February we highlighted March 14 as key to the Aussie dollar’s direction, saying the RBA would probably hold in March and await February job numbers before moving (see note titled “RBA statement shows policy setting just about right”). We maintain this view.

With inflation under control, the RBA will be closely watching employment. Market consensus is for the unemployment rate to rise from 5.4% to 5.5%, a figure which will probably prompt the RBA to push through one more 25 basis point cut knowing very well the risk of runaway rising unemployment.

We have also previously mentioned the timing issues around an RBA move, with an election in September and re-appointment of RBA Governor Glen Stevens expected after the budget. If the employment numbers aren’t good, then the RBA has no good reason to wait. There will be domestic pressure to act. An unemployment rate of 5.5% compares to 5.0% in April 2012. Any read above 5.5% would be seen as a strong sign that the RBA will move decisively, not just by one 25 basis point cut in April but perhaps more cuts in the prevailing months.

Around 100,000 jobs have been added to the Australian economy over the past twelve months but the labor force has grown by around 146,000 workers. The rate of seasonally adjusted unemployment during that time period has risen from 5.1% to 5.4%. Over the past six months, the number of jobs added is around 38,900 compared with 61,200 new job seekers. February will be an important data set and there is no doubt those trading the Aussie dollar will see this as the key catalyst for RBA moves throughout the year.

Between now and Thursday, consumer and business confidence surveys will dominate economic headlines, combined with housing finance numbers due out on Wednesday.

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