Australian dollar edges higher ahead of RBA statement

The Aussie dollar was slightly stronger against the US dollar today despite news of a rise in the jobless rate in April.

The Australian dollar was slightly stronger against the US dollar today despite news of a rise in the unemployment rate in April.

The seasonally adjusted unemployment rate rose to 6.2 per cent in April from 6.1 per cent in March, with the economy shedding a small amount of jobs over the month, against expectations of a small rise.

Paul Brennan, chief economist at Citigroup, Australia, said that while unemployment nudged higher, it remains within a narrow band, suggesting the job market is starting to improve overall.

Still, he added that even faster rates of job creation are needed to lower unemployment from its current decade highs.

The Australian economy was still not creating enough jobs, Mr Brennan said. Leading indicators point to employment growth of around 1.5 per cent to 1.75 per cent. This remains short of growth in the labour force at 1.9 per cent, he added.

Just after5pm (AEST), the Australian dollar was trading at US79.67c, strengthening from US79.61c late yesterday.

The rise in unemployment follows two months of strong gains.

Still, Daniel Blake, economist at Morgan Stanley said he was not convinced the job market was starting to look better.

“We remain sceptical of the improved jobs and hours worked momentum, and expect unemployment to rise further, while the RBA should reconfirm its easing bias,” he said.

Mr Blake said the softness of economic growth over the next year will see unemployment rise toward a peak of about 7 per cent.

“With growth too reliant on the housing cycle and job losses still to come out of the resources sector, we retain our view that peak unemployment will be closer to 7 per cent, and retain our view that the RBA will cut rates once more to 1.75 per cent,” Mr Blake added.

Tomorrow will bring a quarterly review of the Reserve Bank of Australia’s economic forecasts, with some economists tipping a drop in its expectations for economic growth, reflecting weaker commodity prices and a still high Australian dollar.

The RBA cut interest rates on Tuesday, taking the cash rate target down to a record-low 2 per cent, but removed its so-called easing bias. With no hints that further rate cuts are likely, the Australian dollar and government yields are sharply higher.

Marshall Gittler, Head of Global FX Strategy at IronFX, said stronger iron-ore prices were helping the Australian dollar.

“The Australian dollar could strengthen even more if iron-ore prices continue to rise,” he said.