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Australasia, Forex

Australian jobs rebound in Nov, pares risk of Feb rate cut

* Employment +39,900 in Nov vs forecast +14,000

* Jobless rate unexpectedly dips to 5.2% from 5.3%

* Market lengthens odds on Feb rate cut from RBA

By Wayne Cole

SYDNEY, Dec 19 (Reuters) – Australian employment rebounded sharply in November after a shock drop the previous month, while the jobless rate ticked down in a sign the labour market might still have enough life in it to lessen the need for more interest rate cuts.

The local dollar gained a quarter of a cent to $0.6871 in response as the market pared the chance of an easing from the Reserve Bank of Australia (RBA) at its next policy meeting in February.

“The renewed fall in the unemployment rate reduces the pressure on the RBA to cut rates,” said Marcel Thieliant, a senior economist at Capital Economics.

“But the continued fall in job advertisements suggests that unemployment will climb further, and wage growth will probably continue to soften,” he cautioned. “That means that the Bank still has more work to do.”

Thursday’s data showed 39,900 net new jobs were created in November, a welcome recovery from a revised 24,800 drop in October which had been the biggest fall since 2016.

The unemployment rate nudged down a tick to 5.2%, its eighth straight month in 5.2-5.3% range. Analysts polled by Reuters had forecast a gain of 14,000 jobs and a jobless rate of 5.3%.

The breakdown on employment was not so encouraging, however, with only 4,200 of the new jobs being full-time and the rest part-time.

Still, the bounce will be a relief to the RBA which has cut interest rates three times this year to a record low of 0.75% in an attempt to drive unemployment down and revive wage growth.

The data will also be a comfort to the conservative government of Prime Minister Scott Morrison which has been under intense pressure to launch a fiscal stimulus package.

Morrison has resisted all calls for action citing the need to get the budget back into surplus, a political promise that helped him re-election in May.

FEBRUARY STILL LIVE?

Financial markets reacted by lengthening the odds on another rate cuts as early as February, with futures implying a 38% chance of a quarter-point easing compared with 48% ahead of the jobs data.

A move to 0.5% is still fully priced in by June.

The RBA has long argued unemployment needs to get down to at least 4.5% to deliver a desperately-needed lift in wage growth, which has been stuck around 2.3% for a year or more.

Yet the jobless rate has been heading the wrong way since troughing at 4.9% back in February.

Earlier this week, minutes of the RBA’s December meeting showed its policy-making Board were worried that wage growth would worsen if there were any “deterioration” in the outlook for the labour market.

As a result, they explicitly opened the door to more action at the February policy meeting when the bank would have updated its quarterly forecasts for the economy.

“The February board meeting is very live,” said Andrew Ticehurst, an economist at Nomura. “A rate cut is not guaranteed but appears a little more likely than not at this stage.”

“We still see a terminal rate of 0.25% being reached and we continue to assign a 50-60% probability to unconventional monetary policy easing, most likely in late-2020.”

The RBA has made it clear any unconventional steps would likely start with it buying government bonds, aiming to lower yields and borrowing costs across the economy while also putting downward pressure on the Aussie dollar. (Reporting by Wayne Cole Editing by Sam Holmes)


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