Interest rate doves sidelined, Australian dollar soars as jobs data surprise to the upside

Another month, another bizarre reading on Australia’s jobs market. The prospect of further cuts to Australia’s official interest rate has taken a knock in the wake of a surprisingly strong reading on the domestic labour market in March.

The March reading was always going to come under great scrutiny owing to the Reserve Bank of Australia warning, in the statement from this month’s policy meeting, that “some indicators of conditions in the labour market have softened recently”. That was a more downbeat tone than March and previous months where it had described labour market indicators as “mixed”.

Some analysts had started to put the prospect of further interest rate cuts, from their record low level of 1.5 per cent, back on the table.

The Australian economy added 60,900 jobs in March, up from a revised 2,800 gain (previously a 6,400 loss) the previous month, according to data from the Australian Bureau of Statistics. This was also well ahead of economists’ consensus expectations for 20,000 to be added.

The unemployment rate held steady at 5.9 per cent, in line with expectations.

On top of the big headline beat and revisions to the previous month, the other good news came in the form of 74,500 full time jobs (read: higher quality) being added. The February figure was even revised higher to 38,800 from 27,100 previously.

Part-time employment fell by 13,600, with a revised 35,900 (previously 33,500) being shed in February.

The Australian dollar soared as much as 0.7 per cent to $0.7573 on the news, before easing to be 0.6 per cent higher.

The yield on the policy-sensitive 2-year Australian government bond was down 0.4 basis points at 1.632 per cent, a rally of about 3 basis points from its low just before the release of the data. Yields move inversely to price.

Ahead of the data release, Tapas Strickland and National Australia Bank said today’s figures would take on “greater than usual importance with a clear break apparent between the official employment figures and leading indicators such as the NAB business survey and job advertisements.”

Mr Strickland continued:

The divergence has led many to doubt the veracity of recent employment prints and how the deviation resolves itself will be important for the outlook for rates.

NAB expected the addition of 20,000 jobs today and for the unemployment rate to slip to 5.8 per cent.