Unemployment in Australia Spikes Higher as the AUD Sinks

In January the Australian economy shocked markets as it lost jobs pushing the unemployment rate to a 13 year high. This sent the Australian Dollar sinking.

The Australian Bureau of Statistics reported today that the number of employed people contracted by 12,200 last month (January). Analysts expected the economy to add 5,000 new jobs. This pushed the unemployment rate to 6.4 percent. This is a level not seen since 2002 and well above the 6.2 percent analysts expected. Since June of 2014, the unemployment rate had been oscillating from 6.1 to 6.3 percent.

Those Looking For Full Time Work Contracts

We also saw a big drop in those fully employed. This number plunged 28,100 in January. The number of part time employed rose 15,900. There was also a shrinking in those looking for work. This number contracted by 200 to 551,800. Those looking for part time work rose 34,300, coming in at 243,000. The labor force participation rate was steady at 64.8 percent.

Today’s shocking bad data, lends support for more monetary easing from the Reserve Bank of Australia (RBA). The RBA cut rates last week, for the first time since August of 2013. This was a 25 basis point cut to a new record low at 2.25 percent. There is better than a 60 percent chance they will cut their prime rate again in March. They are more than most likely will make another move in April. Rates could hit 1.65 to 1.75 percent by the end of the year.

The Australian Dollar Sinks even Lower

After the news today, the Australian Dollar, which has been under tremendous selling pressure as of late sank even further. The AUD/USD fell to 0.7642 at one point. This is very close to the six year low new 0.7628. So far, the AUD/USD has lost two percent this week and has tumbled 18 percent since September. Please see the below 5 minute MT 4 chart.

There is very little chance this decline will end soon, thus making Ozzie bulls unhappy. The RBA desires a weak local currency, to help spur exports and the Australian Dollar is still 9 to 9.5 percent overvalued according to the central bank. This means the AUD is likely to sink lower, making it attractive to short sellers. We have fundamental economic problems also supporting this as there is a struggling Australian economy, a loosening of monetary policy and a very small yield advantage. This will erode investor confidence bringing in more short AUD traders.

There is also a problem with Australian sovereign paper. There is a shrinking investor base in their debt thanks to recent political disruptions. Prime Minister Tony Abbott just survived a crisis in his leadership this week. This is putting the country’s current fiscal position in jeopardy as well as its AAA credit rating. There is very little hope that Abbott will remain in power much longer as his popularity is plummeting.