The Aussie dollar was the biggest mover amongst the major currencies on Thursday, gaining sharply after the Australian labor force survey painted a much stronger picture of the employment situation for March.
By Peter Martin
Thursday, April 16, 2015
The Australian unemployment rate improved to 6.1% (the consensus estimate was for 6.3%) from February’s 6.2%, while employment grew by 37,700, far greater than anticipated. The advance in employment came alongside a big upward revision in the prior month’s number, which was amended up to 42,000 from an originally-reported 15,600. Moreover, this came alongside a small uptick in the seasonally-adjusted participation rate, which climbed to 64.8% from 64.7%.
The Reserve Bank of Australia surprised the market last week by leaving its key cash rate at 2.25%, when a 25-basis-point cut was widely expected, but the wording of its accompanying statement, saying that ‘further easing of policy may be appropriate over the period ahead’ had seemed to put a rate cut firmly on the table for the May meeting. The strength of these new employment figures makes a strong case against such a move though. AUD/USD was up 1.38% at 0.7787 by early morning in New York.
Domestic macroeconomic data has been mixed today, with figures that do little to change the overall picture of the labor market but may cause some concern over the housing sector. Initial jobless claims were expected to fall from 282,000 to 280,000 but instead rose 12,000 to 294,000 last week. Though this nudges the four-week moving average up a touch to 282,750 from 282,500, the number compares favourably to how things were looking a month ago, so there remains cause for optimism regarding April’s employment situation.
Housing starts increased in March, but at a far slower pace than had been anticipated. Construction on new buildings rebounded to a seasonally-adjusted, annualized pace of 926,000 units in March, a rise of 2%, but this is a disappointing result considering the steep plunge from January to February and misses the consensus estimate of 1,040,000 by a considerable margin. Permits for future construction also disappointed, slipping 5.7% to an annualized 1,039,000. The sluggishness of the numbers for March, when the weather was benign, would seem to counter arguments that the blame for weak economic growth at the beginning of the year can be entirely laid at the feet of adverse weather.
The manufacturing sector would fit under the same heading, based on official data released by the Federal Reserve yesterday. US industrial production shrank 0.6% in March, and while the decline was driven by utilities, the manufacturing component grew just 0.1%, failing to meet expectations for a 0.2% rise. Capacity utilization dipped to 78.4% from 28.9% in February. Industrial production’s tight correlation with overall economic activity suggests GDP growth will remain soft throughout the whole of the first quarter, while the decrease in capacity utilization argues against those looking for inflation to pick up in the coming months.
While various officials from the Fed have stated differing individual views on how soon or late the central bank should be looking to normalize policy, the common thread has been the focus on the incoming data. If the decision is truly contingent on the data, these latest reports should dictate the Fed remains in a holding pattern.
European stocks were lower today on renewed worries over Greece, after Standard & Poor’s cut its credit rating. The negative sentiment was matched on Wall Street, with stocks opening slightly in the red. Shortly after the opening in New York, the Dow Jones was down 41 points or 0.23% at 18,071, while the S&P 500 Index fell 0.25% to 2101.3.
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