Australia Economy Grows With Strong Jobs Report

The strength of the Australian economy has been impressive of late, as iron ore has fared well and China has performed admirably or at least appears to be back on track after some high profile wobbles in the last few years.

The Australian dollar has enjoyed a good deal of support from the country’s  tightening labor market and a healthy trade surplus. As markets hunt for the next central bank to turn hawkish after the Bank of Canada, the Reserve Bank of Australia could be a prime candidate, exchangerate.com reported.

And yet, the Australian Central Bank is clinging resolutely to its dovish stance and actively seeking to discourage Aussie strength. Macro strategists at Australia and New Zealand Bank outlined the details of the latest jobs report painting a bright picture despite some slight disappointments.

“Another strong labor market report for Australia in July, shows employment up 28k and unemployment at 5.6%. Some of the detail was a bit softer than the headline: full-time jobs fell, hours worked were down and the jobs gains were narrowly based. But we wouldn’t overplay these details. The labor market is clearly improving and additional job gains look likely in the near term.”

The reasons for this are complicated but ultimately it is their desire to maintain a growth supportive environment and boost the competitiveness of their commodity exports. Additional concerns lie in the growing divergence between the flagging Western Australia economy and the booming South Australian economy, as one needs more accommodation than the other and the RBA likes to walk at the pace of the slowest.

One of the more interesting areas of concern in the Australian economy is the superheated housing markets, which have been fuelled by years of cheap money with low-interest rates.

This risk taking is actually a reason why the RBA cannot cut rates any further and could encourage them to hike in order to cool the bubble before it pops.

A difficult factor in gauging what Australian rates might be is that the RBA does not give any forward guidance, and instead do it on a meeting by meeting basis. This means huge emphasis is placed on the data each month as traders try and get in on the ground floor of the AUD’s possible tightening cycle.