AUD/USD plummets 1% as Australian unemployment rate reaches highs unseen since 2003

Australian dollar fell sharply against its US counterpart on trading Thursday, after a report made it clear that the rate of unemployment in Australia rose to highs unseen since 2003, while employers in the country cut job positions in January.

AUD/USD hit a session low at 0.8928 at 1:55 GMT, after which consolidation followed at 0.8938, plunging 1.00% for the day. Support was likely to be received at February 10th low, 0.8907, while resistance was to be met at February 12th high and also the highest point since January 13th, 0.9068.

According to data by the Australian statistics bureau, employers in the country cut 3 700 job positions in January in comparison with a month ago, while the median forecast by experts pointed to 15 000 new jobs added. In December compared to November 23 000 jobs have been lost.

At the same time, the rate of unemployment in Australia climbed to 6.0% in January, a level unseen since July 2003, from 5.8% in December. Analysts had projected a lesser increase – to 5.9%.

These data points boosted concerns over the development of nations manufacturing sector, especially after a number of huge car-producing companies intend to terminate their operations in Australia.

What is more, this downbeat employment data may also put pressure on the Reserve Bank of Australia (RBA). Last week the central bank left borrowing costs on hold at the current all-time low level of 2.50%, while also stating that it would probably not introduce new cuts, as such a policy has already favored overall economic activity and rate of inflation. Bank officials have already said that they expect a gradual increase in the jobless rate during 2014.

“The long-term prospects for the Australian economy still require a weaker or competitive currency to help with rebalancing,” said Patrick Bennett, a Hong Kong-based strategist at Canadian Imperial Bank of Commerce, cited by Bloomberg News. “It shouldn’t be a surprise that employment remains weak, we already know that, the RBA has told us that.”

The yield on Australian three-year bonds dropped six basis points, or 0.06 percentage point, to reach 2.99% today.

Meanwhile, earlier in the week the US dollar remained mixed against its major peers, after Federal Reserve Chairman Janet Yellen underscored that central bank’s policy will remain accommodative, despite the current course of monetary stimulus tapering in “measured steps”.

“Let me emphasize that I expect a great deal of continuity in the Federal Open Market Committee’s approach to monetary policy”, Yellen told the House Financial Services Committee on Tuesday. She also reiterated that monetary policy was not on a “pre-set course” and the Fed may maintain borrowing costs close to zero “well past” the time the rate of unemployment in the country decreases below 6.5%.

The central bank announced its decision to reduce monthly monetary stimulus by 10 billion USD to 65 billion USD at the meeting on policy in January, underscoring that labor market indicators, which “were mixed but on balance showed further improvement”, while nation’s economic growth has “picked up in recent quarters.” Fed policymakers are expected to conduct their next meeting on March 18th-19th.

Retail sales index in the United States probably remained flat in January compared to December, according to the median estimate by experts, after a month ago sales rose 0.2%. The Census Bureau is expected to release the official numbers at 13:30 GMT today. Retail sales are closely watched, because they provide crucial information regarding the tendency in consumer spending in the United States, which, on the other hand, accounts for almost two thirds of nations Gross Domestic Product. Better than anticipated figures will certainly heighten the appeal of the greenback.

The number of initial jobless claims, an indicator for lay-offs in the country, probably decreased to 330 000 during the week ended on February 8th, from 331 000 in the preceding week. Official figures are to be announced at 13:30 GMT today.

Elsewhere, the Aussie was losing ground against the euro as well, with EUR/AUD cross surging 1.12% on a daily basis to trade at 1.5232 at 7:44 GMT. AUD/NZD was down 0.85% to trade at 1.0757 at 7:46 GMT. The pair earlier touched 1.0752, or the lowest level since January 31st.

Australian dollars real exchange rate was probably overvalued by 5 to 10 percent at the fall of 2013, according to a report by the International Monetary Fund. AUD/USD closed at 0.8924 on December 31st.