The sterling vs Australian dollar exchange rate weakened this week, partly because UK Prime Minister Boris Johnson looks set to “legally prohibit” the UK’s Brexit transition continuing beyond the end of 2020. This raises the risk of a new “No Deal” Brexit next year, if the UK and EU don’t agree a future trade deal in this tight schedule.
Australia’s jobless rate fell by -0.1% last month, as report by the Australia Bureau of Statistics (ABS) this week. This was above forecasts for unemployment to stay steady at 5.3%. In particular, this is because Australian companies surprisingly created 39,900 new jobs in November, far above forecasts for 14,000 new roles, as well as October’s 19,000 fall.
This has raised hopes that Australia’s job market might be gaining speed, following recent months in which the unemployment rate has risen, as companies have shed workers. To be specific, this week’s upbeat statistics takes Australia’s jobless rate closer to the Reserve Bank of Australia (RBA’s) target of 4.5%, which it considered desirable for sustainable inflation and rising wages.
With this in mind, it now looks somewhat less likely that the RBA will cut interest rates in 2020 below their current 0.75%, following the Central Bank’s three cuts this year. If the RBA were to hold Australia’s borrowing costs steady in 2020, this could be considered a vote of confidence in Australia’s economic outlook, and encourage both businesses and households.
After all, although the advantage of lower interest rates is that they reduce the cost of a loan, when interest rates fall very low, this tends to worry firms and consumers that the economy needs firm monetary support to grow. Already, the RBA has warned that it could cut interest rates as low as 0.25% next year, and initiate its own form of Quantitative Easing, an extraordinary stimulus. So we’ll see how Australia’s economy performs in coming months, and how the Reserve Bank responds.
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