Australian Job Market Strong as Focus Turns to RBA -- Update

By James Glynn Features Dow Jones Newswires

Australia's resource-rich economy posted an impressive full-time employment growth in June, adding to a picture of a rapidly improving job market, a trend that has currency and bond market traders buzzing about the potential for higher interest rates soon.

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The Australian dollar rallied sharply on the data, knocking on the door of US$0.8000 for the first time since early 2015.

While the unemployment rate remained steady at 5.6% in June from May, the report by the Australian Bureau of Statistics showed a rise in full-time employment of 62,000.

Economists said the creation of permanent jobs, over part-time positions, has been building momentum for a number of months, and represents the biggest single reason to be upbeat on the economic outlook.

In the past four months, full-time job creation has boomed, growing by nearly 180,000 in that time, the data showed.

"The pace of employment growth has clearly cranked up a few notches in recent months," said John Peters, senior economist at the Commonwealth Bank of Australia. The economy is creating jobs at nearly twice the pace of what is needed to soak up population growth, he added.

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That's an outcome that should see concern about underemployment of workers start to ease quickly. Policy makers should become cheerier if it translates into stronger income growth.

The employment data validated comments by the Reserve Bank of Australia on Tuesday that strength in job creation is raising its confidence that wages growth won't go into a retreat. Wages have been flatlining, a key concern for the RBA.

Unemployment has fallen since the start of the year, something that will have brought relief to the RBA, which had grown fearful in the early months of 2017 that the jobless rate was set to spiral above 6%.

Strong job creation chimes well with recent surveys of business confidence and conditions, both of which are upbeat.

"Firms are still very upbeat about the short-term outlook, which hopefully means that we will see a continuation of the current strength in business conditions," said Alan Oster, chief economist at National Australia Bank.

The upbeat June jobs data has landed amid much speculation in markets that the RBA this week began the process of preparing financial markets for eventual interest rate increases.

Prior to this week, the RBA has presented a position of neutrality, focusing on softness in the job market, concerns about record household debt, flat-to-falling wages growth, and potential systemic risk flowing from an overheated housing market.

As a result, interest rates have been on hold since August 2016 at a record low of 1.5%.

However, in minutes of its July 4 policy meeting, the RBA said it has discussed that it estimates the neutral cash rate at 3.5%, adding that policy settings have now been relaxed for 5 years.

Some currency traders took this to be a signal that the central bank is moving closer to raising interest rates, albeit there is no rush for it to do so.

All eyes are now turning to the RBA's Deputy Governor, Guy Debelle, who will speak in Adelaide on Friday on the policy environment. Some economists expect him to dash the hawkish chatter in markets. Failure to do so could see the Aussie dollar climb further, breaking up through US$0.8000.

Annette Beacher, head of economic research at TD Securities, based in Singapore, said Mr. Debelle is likely to repeat the RBA's mantra that a higher currency would be unhelpful.

"We expect that phrase to be widely interpreted as jawboning," Ms. Beacher added.

-Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

July 20, 2017 01:27 ET (05:27 GMT)