Friday, October 08, 2010

Parity with the US dollar? Don't bet on it.

The Aussie dollar is within spitting distance of one US dollar for the first time in decades after an extraordinary surge in hiring pushed an extra 56,000 Australians into full-time jobs in September on top of 57,000 in August -- a two month recruitment spree bettered only once in Australian history.

The news pushed the Aussie to a post-float high of 99.20 US in early European trade and has investment bank Goldman Sachs predicting an Aussie worth US$1.06.

"We are destined to have a crack at parity," said National Australia Bank research chief Peter Jolly. "On Tuesday the Reserve Bank surprised by not moving rates and the currency came off. But Thursday's strong employment report made the market price back in a much greater chance of a hike in November."

Some 50,000 previously out-of-work Australians found full-time work in September and 6300 previously part-time workers moved full-time.

In the past six months an average of 32,000 Australians per month have found jobs - well in excess of the 21,000 per month growth in the working age population.

"Employment is now growing faster than before the global downturn," said Westpac economist Bill Evans. "An unemployment rate below 5 per cent is likely by Christmas."

Holding steady at 5.1 per cent, Australia's unemployment rate is now just a fraction above the psychologically important benchmark, with the unemployment rate among men looking for full-time work well below it at 4.6 per cent.

Western Australia has the tightest labour with an overall unemployment rate of 4.6 per cent and just two unemployment people for each vacant job. In NSW there are three unemployed for each vacant job and in Victoria four... NSW has created the bulk of the new jobs since January hiring an extra 66,400 workers, well in excess of Victoria’s 51,600 and Western Australia’s 38,800. The NSW unemployment rate stands at 5.2 per cent and Victoria’s 5.3 per cent.

Jobs Minister Chris Evans welcomed what he said was a “very strong result and tribute to economic management and the stimulus program.”

But he said the jobs surge would put upward pressure on interest rates and further pressure on the dollar.

"Obviously, there are impacts on the value of the dollar and interest rates which will be governed by the Reserve Bank," he said. "What we are seeing is the stimulus plan bringing home for Australians job opportunities and that's to be celebrated."

In unusual bipartisan agreement Shadow Treasurer Joe Hockey said he had “always been forthright in attributing some merit to the government’s stimulus package.”

“There can be no doubt that throwing huge amounts of money at the economy did boost demand,” he told a Melbourne business audience delivering a speech entitled “Managing success”.

However the government’s budget settings were “no longer appropriate."

"They were put in place during a time when the economy faced potential downside risks. Now the economy is running close to Treasury’s definition of full employment, the government’s settings must be recalibrated,” he said.

The high dollar is set to hurt export industries such as tourism and education as their products become more expensive for foreigners attempting to buy them with local currencies.

Foreign continue to get cheaper for Australians further harming domestic tourism with an increase of 10 per cent in the number of Australians holiday’s abroad in the year to August.

Although prompted by an expectation that the Reserve e Bank will lift interest rates the higher dollar will take some pressure off the bank by pushing down the price of imported goods, containing inflation.

Nevertheless late yesterday the money market was pricing in a 68 per cent chance of a Melbourne Cup Day rate hike, up from 40 per cent before the jobs news.

Published in today's SMH and Age


Extra jobs since January (current unemployment rate)

NSW + 66,400 (5.2%)
Victoria + 51,600 (5.3%)
Queensland + 44,500 (5.3%)
Western Australia + 38,800 (4.6%)
South Australia + 7,100 (5.5%)
Tasmania down 3,400 (5.4%)

ABS 6202.0 seasonally adjusted

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6202.0 6354.0