Will Strong Employment Numbers Sway the RBA?

Looks like Australia’s employment numbers are starting to gain momentum again. But how exactly will this affect the Reserve Bank of Australia‘s (RBA) stance on the economy?

Early this week we saw how Australia’s jobs report surprised investors when it printed better than markets had expected. Though the June’s unemployment rate steadied at 4.9%, overall employment rose by 23,400, which is higher than the 15,000 increase that analysts were expecting.

Digging further into the report we’ll see that full-time jobs rose by 59,000 (the highest rise in three years!) while part-time jobs slipped by 35,600. Meanwhile, May’s data was revised down to show 500 job losses after clocking in a 7,800 increase last month.

Wanna how did traders react to the report? If we take a look at yesterday’s AUD/USD 15-minute chart we’ll see the huge 50-pip jump at the release of the report. The pair reacted in direct correlation to the jobs figures, but it also retraced back to the previous day’s high. It soon went back up though, and even ended the day above the 1.0750 handle when positive reports also came out from other regions.

AUD/USD Employment Report Reaction

Last time I checked Steve Jobs hasn’t moved Apple from the U.S. So why did Australia’s employment figures jump in June? Market junkies are citing two reasons.

First is the good ol’ “What goes down must come up” principle. Remember that flooding in Australia had taken its toll on the economy early this year, and it had halted mining efforts. This time around companies are back to hiring employees as they gain more confidence in domestic economic recovery.

Another major reason for the employment uptick is the growing demand from China and other fast-developing economies. Since minerals exports make up a large chunk of Australia’s economic growth, the persistent minerals and energy demand from these huge economies continue to support job growth.

Don’t get too positive on the Aussie though. The uptick in employment, as positive as it may be, was actually already expected and perhaps even priced in by markets. What’s more, it doesn’t change the fact that the central bank chose to keep interest rates steady at 4.75% and even hinted at a cut in the economic growth outlook.

Recall that early this week, RBA Governor Glenn Stevens said that the economy is NOT likely to hit their growth targets since the resumption of mining operations from the floods has taken much longer than expected.

In addition to this, Wayne Swan, the Deputy Prime Minister of Australia, said that growth forecast could be slashed by as much as 1.5% due to the possibility of the strong Aussie hurting their minerals export industry.

The country is currently anticipated to grow 4.25% for 2011.

If you ask me, I don’t see the RBA raising rates any time soon. The fundamentals haven’t really changed and there are a lot of external factors that the RBA cannot really do anything about.

For instance, China has been very aggressive in tightening recently. Remember that the People’s Bank of China had just raised interest rates for the third straight time in response to the rising inflation. As I mentioned, China is one of Australia’s biggest importers and a slowdown in their growth could have a negative effect on Australia’s export industry.

And then there’s also the seemingly endless debt drama in euro zone. On Wednesday, the market was treated to more bad news as Portugal’s credit rating was downgraded to junk status by Moody’s.

I guess what I’m trying to say is you shouldn’t read too much into the positive employment figures. There will be more of them, but the RBA’s stance towards monetary policy probably will not change any time soon. I don’t see any rate hikes happening in the foreseeable future!