AUD Analysis: Unemployment Rates and Their Impact on the Aussie

ForexNewsNow | Published on November 11, 2010 at 2:30 pm

NEW YORK (Forex News Now) – The Australian government released a disappointing unemployment report today, creating uncertainty for the economy only weeks after the Reserve Bank of Australia raised interest rates.

In the online forex news, the Australian Bureau of Statistics reported that the unemployment rate in Australia rose to 5.4% in October from a previous 5.1% – reaching the highest unemployment level in the country in the past six months.

While the rate is still well below that of other developed economies – particularly with the high rates of the United States and the European Union – it has performed strongly through 2010, so today’s development comes as a disappointment.

In fact, the strong employment rate, coupled with rising inflation, has forced the RBA to raise rates seven times since October, 2009 – an unprecedented amount of monetary activity compared to Australia’s peers.

Scott Haslem, an economist with UBS, commented that the increase in the unemployment rate “adds further to the argument that the RBA is likely to be on hold for a while to come”.

His comments echo the sentiments of critics who have called for a tighter monetary policy from the central bank in light of the surging Australian economy, relatively-high employment, and rising inflation.

In response to the online forex news, the Australian dollar fell 0.56% against the dollar, dropping below parity to $0.9991. The Aussie also fell 0.3% against the New Zealand dollar, to 1.2784.

What does the unemployment rate mean for the strength of the Aussie as a whole? Analysis is mixed, but by itself the unemployment report is not likely to reverse the fundamentals of the Aussie in the near term.  Unemployment still remains far below the 9.6% rate for the United States and 10.1% rate for the European Union, and likely will not surge much further.

The continued strength of the Chinese economy – one of Australia’s key trading partners – will also support the Aussie, which is powered by Australia’s mining and commodity industries that feed resource-hungry Chinese factories.

Dropping consumer confidence, however, could couple with unemployment concerns to put a damper on the Aussie.  In other online forex news, Australian consumer confidence unexpectedly fell 5.3% in November, mostly in response to the RBA’s decision to increase interest rates.

In the near term, the Aussie may float around parity with the dollar, but should at least end 2010 well in the black against USD (especially considering it is currently up 7.46% over the last 12 months).

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