Australia unexpectedly gained 40,600 jobs in September, sending the [B]Unemployment Rate[/B] lower to 5.7% from 5.8% in the previous month, the first drop in five months. Even more encouraging, most of the gains came from a 35,400 increase in full-time positions. The [B]Australian Dollar[/B] surged as the data crossed the wires with traders taking the outcome as validation of RBA Governor Glenn Stevens’ promise to extend rate hikes after the central bank unexpectedly raised borrowing costs earlier this week, pushing to test above the 0.90 level against its US counterpart for the first time in over a year. Traders are now pricing in a 99% probability that the RBA will raise rates by another 0.25% next month and at least 1.75% over the coming year.
Fiscal stimulus has played a key role in the labor market’s resilience, however, after the government spent A$20 billion in cash handouts to consumers and committed A$22 billion to new infrastructure projects. Indeed, a report from the Organization for Economic Cooperation and Development (OECD) has said that Australia’s unemployment rate would be as much as 1.9% higher next year without the government’s intervention, equating to about 150-200K more in job losses. While Treasurer Wayne Swan has promised that fiscal stimulus will remain in place despite the central bank’s move to reverse expansionary policy, opposition parties in the government have strongly argued that spending needs to be wound down to reduce the public deficit and are now launching an inquiry into the government’s policies, with results due at the end of this month. The ruling Labor party does not have a voting majority in Parliament, and it remains to be seen what happens to Australia’s employment situation if the opposition successfully cuts off the flow of public funds to the economy.
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