Soft jobs data raises prospect of rate cut

A weak employment report for December has increased the chance of an interest rate cut in February, so economists say. The Australian Bureau of Statistics (ABS) announced that the nation lost 5,500 jobs in December. The result was well below market consensus of a 4,500 gain in total employment. NAB group chief economist Alan Oster said the data showed the labour market was soft. “Generally the message is that the labour market whilst it is OK is softening and therefore unemployment is starting to go up,” Mr Oster said. The ABS said the unemployment rate was at 5.4 per cent in December, up 0.1 percentage points from an upwardly revised 5.3 per cent in November.

The Reserve Bank of Australia has delivered 175 basis points of interest rate cuts since November 2011, sending the cash rate to three per cent and levels not seen since the global financial crisis. Mr Oster said the unemployment data had raised market expectations of more interest rate relief from the RBA in February at the next meeting. However, the release of the December quarter consumer price index (CPI) report due on January 23 would have a bigger bearing on the central bank’s thinking. “This is soft, so this would basically mean that the market would price in a bigger chance of a rate cut,” Mr Oster said. “But I think you really need a low CPI before they actually pull the trigger.”

The Australian dollar also reached negatively due to the jobs numbers. The currency dropped to 105.36 US cents after the data was released at 1130 AEDT, down from 105.64 US cents shortly before.