Figures release towards the end of this week show that the RBA once again seems to have been proven correct in predicting the peak of the unemployment rate which remained steady at 6.2% due to a slight decrease in the participation rate which nullified a small decrease in job growth. Overall, there was a net loss in full time jobs which was offset by a substantial increase in part-time employment (good news for most uni students, but not so much for those graduating, sorry guys). Interestingly, it should be noted that for the past 2 years the unemployment rate has remained above 6% despite persistent increases in both aggregate hours worked and employment. This seems to be a sign that rather than the economy contracting or remaining stagnant that the economy can’t keep up with the increases in the size of the labour force as more people enter the market.
Of course, the other big news domestically was Westpac’s relatively unexpected increase in interest rates on mortgages. Here are a couple leading theories on why it may have occurred. Firstly, many economists think it was due to the increased capital requirements set by regulators which saw a greater incentive to maintain returns on housing capital by the banks. Secondly, with the RBA’s vocal concerns about housing prices for most of the year, some believe this act was a signal from the private banks that they were willing to de-anchor housing rates from other loans so the RBA would be free to lower the cash rate further. However, on the topic of the housing bubble, the RBA also issued a statement late in the week noting that housing prices were expected to fall notably by the end of next quarter due to the efforts of both themselves and regulators in trying to moderate growth so it may no longer be a factor this time next year.
Overall this week despite everything going on locally the AUD rose substantially against the greenback, rising over USD 0.73 mid week. This was primarily due to an apparent split at the US Fed Reserve regarding expected increases in rates. A great deal of the information coming out of the US and the central bank itself is mixed with some claiming the media has made exaggerated claims of a split while others say it’s being downplayed.