Monthly Economic Review: Australian Dollar

If you saw that recent RBA interest rate cut coming, then you’ve probably read my previous Monthly Economic Review on the Australian dollar. Let’s check out the next batch of reports to see if another easing move is likely and what it could mean for the Aussie’s forex price action.

Employment

A quick glance at Australia’s April jobs figures might be enough to send Aussie bulls scurrying back home, as the employment change and jobless rate readings came in the red. Instead of adding an estimated 4.5K positions during the month, the economy actually lost 2.9K jobs in April and saw its unemployment rate climb from 6.1% to 6.2%. Components of the report indicated that full-time hiring fell by 21.9K while part-time employment picked up by 19K.
Analysts remarked that the decline in both mining and non-mining investment is to blame for the downturn in hiring. This supports the RBA’s claim that the Aussie’s appreciation is weighing on the competitiveness of local industries, causing companies to lay off workers as they scale down production.
On a more positive note, the ANZ job advertisements report showed a 2.3% rebound for April after falling by 1.3% in March. This leading indicator of hiring conditions suggests that there still might be enough job opportunities to spark a recovery in employment later on.

Consumer Spending

Since employment conditions haven’t exactly been favorable, it’s no surprise that consumer spending has also slumped. After showing a 0.7% increase in March, retail sales chalked up a bleak 0.3% uptick for April, lower than the projected 0.4% gain.
In addition, consumer sentiment has deteriorated, with the Westpac index printing a 1.2% decline for March followed by a 3.2% drop in April. As it turns out, Australians are getting increasingly worried about financial conditions, which might lead them to be more tight-fisted with their hard-earned cash.

Trade Activity

The latest trade balance also showed dismal figures, as the deficit came in at 1.32 billion AUD, worse than the projected 0.98 billion AUD shortfall. To make things worse, the previous month’s reading was downgraded to show an even wider deficit of 1.61 billion AUD from the initially reported 1.26 billion AUD trade deficit.
A closer look at the underlying data shows that both imports and exports fell by 2%, reflecting a slump in local and international demand. Falling prices for iron ore and coal exports also dragged trade revenues lower, even as shipment volumes have picked up.
It doesn’t help that China, which is Australia’s number one trade buddy, is facing economic problems of its own. This could spell bleaker prospects for Australia’s raw materials exports, which is one of the economy’s major sources of growth. On the flip side, the recent surge in iron ore prices could make up for the potential decline in volumes and contribute to stronger trade revenues for Australia later on.

Housing Demand

Perhaps the only economic sector that’s enjoying brighter days in Australia is the housing industry, as building approvals showed a stronger-than-expected 2.8% jump while home loans climbed by an impressive 1.6%. Although the RBA has been cautious about stoking too much strength in the housing sector, this pickup in demand could support consumer spending down the line once home-buyers start ramping up purchases of construction materials, appliances, and furniture.