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Australian Dollar back on its Heels after Surprise Employment Report

H.S. Borji
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The Australian dollar was back on its heels Thursday, as commodity prices continued to weigh on the currency despite a surprise surge in Australia’s job numbers.

The Aussie, as the local currency is called, tumbled 0.56 percent against the US dollar to 0.9105. The Aussie-to-US dollar exchange rate climbed to an overnight high of 0.9215.

Australia’s currency weakened across the board on Thursday. The Aussie-to-Japanese yen exchange rate declined 0.52 percent to 97.30.

Against its New Zealand counterpart, the Australian dollar was down 0.1 percent to 1.1122 NZD.

Australia added a whopping 121,000 jobs last month, the biggest monthly gain since the current series of record keeping began in 1978, the Australian Bureau of Statistics reported on Thursday. Economists forecast a gain of just 12,000 after the labour market suffered a setback in July.

The vast majority of the gains were in part-time jobs, which jumped 106,700 over the previous month. Employers added 14,300 full-time workers in August, following a gain of 15,400 the previous month.

As a result, the unemployment rate unexpectedly fell to 6.1 percent from 6.4 percent, nearly reversing the previous month’s surprise surge.

Australia’s participation rate – the percentage of people working or actively searching for employment – rose 0.4 percentage points to 65.2 percent, a 16-month high.

Today’s figures alleviate some concerns about Australia’s volatile labour market, which is being pressured by a broad slowdown in mining and other resource-related investments. According to ANZ, as many as 75,000 resource-related jobs will be cut in the next few years. It is unclear whether this will have a long-term negative impact, given that resource-related employment accounts for just 2 percent of Australia’s overall labour market.

In commodity news, the price off iron ore continued to tumble and is sitting at five-year lows, as supplies have exceeded demand. According to Goldman Sachs, 2014 marks “the end of the Iron Age,” as new production capacity continues to align with demand growth.

Goldman cut its 2016 forecast for seaborne ore to $79 a metric ton from $82. Its 2017 outlook was cut to $78 from $85, according to Bloomberg News.

According to The Wall Street Journal, declining iron ore prices will “transform Western Australia’s economy,” a region that has relied heavily on the industrial commodity.

Meanwhile, the price of copper continued to tumble on Thursday. Copper futures declined 1 percent to $307.95 a pound.

In Chinese data, consumer inflation fell faster than forecast in August, raising concerns the world’s second-largest economy was experiencing a slowdown in domestic demand.

Consumer prices in China rose 0.2 percent in August, half the rate of forecasts, the National Bureau of Statistics reported today. This translated into an annual gain of 2 percent, down from the 2.3 percent annual rate posted in July.

As Australia’s largest and most influential trade partner, China is a key driver of the Australian currency. Chinese growth trends are perceived to impact demand for Australian goods and services, which in turn influences demand for the currency. Developments in China are closely monitored by the Reserve Bank of Australia, which regularly comments on their major trade partner’s economic situation.

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