Australia-New Zealand Job Gain Deepens Dilemma on CurrenciesMichael Heath
Australian and New Zealand jobs growth surged, sending the currencies soaring and undermining central bank efforts to relieve pressure on manufacturers and exporters.
The number of people employed in Australia rose by 50,100 in April from a month earlier, more than four times economists’ estimates, and the jobless rate unexpectedly fell to 5.5 percent, government data showed today. New Zealand employers added a record 38,000 jobs last quarter and its unemployment plunged to a three-year low of 6.2 percent. Economists expected 6.8 percent.
Both currencies surged to levels that preceded the Reserve Bank of Australia’s decision two days ago to cut the benchmark interest rate to a record low and New Zealand Governor Graeme Wheeler’s announcement a day later that he has intervened to weaken the kiwi. South Korea also cut rates today to ease pressure on exporters. The surge in Australian jobs may undermine the case for RBA Governor Glenn Stevens to add to 2 percentage points of reductions in the past 19 months.
“Reserve Bank Board members probably winced when they heard the job numbers,” said Craig James, a senior economist at a unit of Commonwealth Bank of Australia, the nation’s biggest lender. “The Reserve Bank will probably leave a rate cut on the table over the next few months. But more figures like this and it clearly won’t be acting on the easing bias.”
The Australian dollar jumped as high as $1.0254 from $1.0165 before the jobs data. The three-year bond yield rose six basis points, or 0.06 percentage point, to 2.57 percent. The move in yields was the biggest since March 25.
The kiwi bought 84.61 U.S. cents at 6.24 p.m. in Wellington from 84.09 cents before the report. The currency had declined to a five-week low yesterday.
The number of Australian full-time jobs advanced by 34,500 in April, and part-time employment rose 15,600, today’s report showed. The participation rate, a measure of the labor force in proportion to the population, gained to 65.3 percent in April from a revised 65.2 percent a month earlier, it showed.
The RBA reduced rates to a record-low 2.75 percent this week to boost industries including construction in the south and east, as a resource investment boom in the nation’s north and west peaks. Today’s data show that New South Wales and Victoria, the most populous states, led the job gains with 19,700 and 8,100 respectively. The mining hub of Western Australia added 2,100 jobs, it showed.
“A rotation away from mining states -- Western Australia and Queensland -- to ‘housing and services’ states -- New South Wales and Victoria -- is unfolding,” said Alvin Pontoh, a Singapore-based Asia-Pacific strategist at TD Securities Inc. “We expect this trend to continue in the remainder of 2013 as monetary policy gains more traction.”
Traders are pricing in a 29 percent chance that the RBA will lower rates to a fresh record of 2.5 percent at its June 4 meeting, according to swaps data compiled by Bloomberg.
Near-zero rates in the U.S. and Japan and quantitative easing to stimulate their economies has unleashed cash in search of yield. The Australian and New Zealand dollars have been the best performers among the 16 major currencies tracked by Bloomberg in the past four years.
The RBNZ’s Wheeler is resorting to currency intervention and lending restrictions to steer the economy as surging house prices rule out interest-rate cuts and the kiwi’s strength bars rate increases. He has signaled he won’t raise the official cash rate from a record-low 2.5 percent this year. The kiwi plunged yesterday after Wheeler said the central bank sold the currency and can do so again to protect economic growth.
His Australian counterpart, Governor Stevens, in a statement accompanying the RBA’s May 7 rate cut, said the Australian dollar’s record strength “is unusual given the decline in export prices and interest rates.”
The two central banks are joining policy makers from Zurich to Tel Aviv, Stockholm and Seoul in seeking to stem the appreciation of their currencies. Bank of Korea Governor Kim Choong Soo and his board today lowered the benchmark seven-day repurchase rate to 2.5 percent from 2.75 percent.
Hiring in Australia has been spurred by energy companies from Chevron Corp. to ConocoPhillips that are building seven liquefied natural gas projects in Australia at a cost of almost $200 billion. Construction of Santos Ltd.’s $18.5 billion Gladstone liquefied natural gas project on Queensland state’s Curtis Island will peak this year, the company’s Chief Executive Officer David Knox said today in a speech in Adelaide. More than 7,000 people are working on the development, he said.
“While Australia’s unemployment rate remains one of the lowest in the world, we shouldn’t be surprised to see some volatility in the period ahead, reflecting the transition underway in our economy,” Treasurer Wayne Swan said in a statement today. “Over the next year or so we expect to see the resource investment boom transition into the production and export phase, which is less labor intensive, and the high dollar is still bearing down on a number of sectors.”
Australian industry has been squeezed by the currency’s longest stretch above parity with the U.S. dollar since it was freely floated in 1983 that has made tourism more expensive and exposed local manufacturers to cheaper imports. Rosella, a 117-year-old saucemaker, announced its closure at the start of March, leaving 70 workers without a job. General Motors Co.’s Holden division said last month it will cut about 500 jobs in Australia, citing currency devaluations in competing markets.
Australia’s jobs data has swung from gains to losses in the past three months. April’s 50,100 rise was preceded by the loss of 31,100 jobs in March and the addition of 71,700 in February.
“The last couple of months has seen a higher than usual amount of sampling volatility,” said Andrew Salter, a Sydney-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. “The market has certainly priced out some RBA easing but I don’t think there’s going to be a view change on the basis of one month’s data. Certainly the trend in the unemployment rate, still being higher, is consistent with the RBA’s outlook.”
Employment in New Zealand rose the most since records began in 1989 after falling 1 percent in the three months through December. From a year earlier, employment increased 0.3 percent, today’s report showed. Economists expected a 0.7 percent decline.
“We expect the RBNZ to stay the course and remain neutral for now,” TD’s Pontoh said in a note. “However, a sustained improvement in the data combined with a hot housing market will force the RBNZ to lift the cash rate in December.”