RBA Easing Cycle Halted by Biggest Job Gain in 13 Years: Economy

Australia’s interest-rate reduction cycle may have ended as traders bet the biggest gain in payrolls in almost 13 years will prompt the central bank to hold off further cuts, sending the currency to a one-month high.

Contracts based on overnight borrowing costs show a 66 percent chance the Reserve Bank of Australia will leave rates at 3 percent through September, compared with a 68 percent chance of at least a quarter-percentage-point cut that was priced in on March 8, swaps data compiled by Bloomberg show. The number of people employed in February jumped 71,500, the biggest monthly gain since July 2000, according to an Australian Bureau of Statistics report in Sydney today.

“While the labor force survey is very volatile, the trend is now clearly improving,” said George Tharenou, a senior economist in Sydney at UBS AG. “Overall, the stronger labor market data is consistent with our non-consensus view that the RBA cash rate has troughed.”

The data show the RBA’s 1.75 percentage points of rate cuts in the past 17 months are rebalancing an economy where mining regions in the north and west have thrived, while builders and manufacturers in the south and east struggled. It’s also a boost to Prime Minister Julia Gillard who trails in polls. Australian government bond yields surged, with all maturities above the RBA’s cash rate of 3 percent for the first time since July 2011.

Today’s report showed the unemployment rate held at 5.4 percent, compared with economists’ forecast for a rise in joblessness to 5.5 percent and a 10,000 increase in employment. Australia’s participation rate, a measure of the labor force in proportion to the population, gained to 65.3 percent in February from 65 percent a month earlier, it showed.

Market Reaction

The Australian dollar touched $1.0383 in Sydney, the highest since Feb. 6, from $1.0306 before the data were released. The two-year government bond yield reached 3.11 percent, from 2.96 percent before the data’s release, while the 10-year yield climbed to 3.71 percent, the highest since April, from 3.60 percent.

While February’s jobs number was “positive,” the central bank needs to also weigh other data on the employment market, such as lower average hours worked, RBA Assistant Governor Christopher Kent said in Sydney today.

“We don’t want to turn things around on the basis of one month’s number,” Kent said in reply to questions. “The labor market’s very important, but it’s not the full story. So you want to be looking at a range of other indicators.”

The employment report showed the number of full-time jobs advanced by 17,800 in February, and part-time employment rose by 53,700. New South Wales, the nation’s most-populous state, added 22,000 jobs, and Victoria, the No.2, gained 37,900, erasing a 34,800 loss in January. The resource-rich states of Queensland and Western Australia lost a combined 3,700 jobs.

‘Hard to Attract’

“A raft of companies has been telling us that it is hard to attract and retain the right workers,” said Craig James, a senior economist at a unit of Commonwealth Bank of Australia, the nation’s biggest lender. “It is just that the headlines are dominated by a small number of listed companies announcing job cuts rather than the raft of small and medium-sized firms that are getting on with business and hiring new workers.”

On Feb. 21, Iluka Resources Ltd., the world’s biggest zircon producer, Origin Energy Ltd., Australia’s biggest electricity retailer, and Telstra Corp., its biggest phone company, announced a total 1,200 job cuts.

While the Australian currency has stayed above parity with the U.S. dollar for more than eight months, its longest stretch over that threshold since it was freely floated in 1983, hurting industries exposed to international goods, some are weathering the competition.

Asia-Pacific Region

Cotton On Clothing Pty, a Geelong, Victoria-based retailer, will expand its headquarters and create 500 jobs, the state government announced late last year. U.S.-based yogurt company Chobani opened a A$30 million plant in Victoria and expects to create 150 positions, the company said in December.

Elsewhere in Asia, central banks in South Korea and the Philippines left benchmark rates unchanged today. New Zealand’s central bank said it expects to keep borrowing costs at a record low until next year and signaled a preparedness to reduce its benchmark rate if the local dollar rises more than the economy justifies.

“If the exchange rate rose for reasons not justified by New Zealand’s economic fundamentals, all other things equal, this would lead to a lower-than-expected OCR,” the Reserve Bank of New Zealand said in a statement earlier today, helping send the nation’s currency to the lowest level this year.

Spanish Sales

In Europe, Spain’s adjusted retail sales fell 10.2 percent in January from a year earlier. The Swiss National Bank left the three-month Libor target rate at zero.

U.S. initial jobless claims probably rose to 350,000 in the week ended March 9 from 340,000 in the previous period, a Bloomberg survey showed before a report due today.

Australia’s central bank said this month there are signs lower rates are gaining traction with households.

“During 2012, there was a significant easing in monetary policy,” Governor Glenn Stevens said March 5 when he kept rates unchanged for a second-straight month. “There are signs that the easier conditions are having some of the expected effects.”

Treasurer Wayne Swan hailed the jobs result, saying Australia’s economic record “stands in stark contrast” to many developed economies struggling to generate employment.

“Today’s figures once again confirm Australia has one of the strongest set of economic fundamentals in the developed world,” Swan said in a statement after the report.

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