The pound to Australian dollar interbank exchange rate increased notably this week, in part because the UK and EU have signed a Brexit deal, which the UK’s and EU’s parliaments must now sign off. However, in addition, sterling gained in value versus the so-called Aussie, because Australia’s economy has showed further signs of weakness.
These signs include fewer participants in the job market, falling business confidence, and a rising probability that the Reserve Bank of Australia (RBA) could cut interest rates again in 2019, down to a new record low of 0.5%.
To begin, Australian unemployment unexpectedly fell by -0.1% in September, according to the Australian Bureau of Statistics (ABS) this week, beating forecasts that joblessness would hold at 5.3%.
However, though this would ordinarily be considered a positive sign for Australia’s economy, it’s chiefly because Australia’s labour force participation rate fell last month, by -0.1% to 66.1%. So there were fewer people out of work, because statistically, there were fewer people looking for work.
Australia’s employment change rose by just 14,700 last month, 300 posts below predictions, while joblessness remains well above the RBA’s target of 4.5%. Marcel Thieliant, an economist at Capital Economics, said about these statistics that: “employment surveys point to jobs growth slowing and we expect unemployment to reach 5.5% by early next year.”
In addition, Australia’s underutilisation rate, referring to people who are in part-time work and want more, remains historically high at 13.5%.
Elsewhere, it’s worth noting that Australia’s business confidence fell in Q3 of this year, according to NAB’s respected survey this week. In particular, sentiment among companies fell to -2, below both Q2’s figure of +5, as well as financial market forecasts for a much higher +26.
As a result, and because of Australia’s lacklustre job market, it’s predicted that Australia’s Central Bank could reduce interest rates further later this year, down to 0.5%. This would be the fourth cut in borrowing costs this year, down to a new all-time low, suggesting that Australia’s economy needs even greater monetary support to prosper.
According to RBA Deputy Governor Guy Debelle in a speech yesterday, a downturn in Australia’s home building has been a larger drag on the economy than previously expected, and it may go on for a while longer.
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