Interest rate rise expectations firm on jobs data as Aussie dollar hits 4-year high

The S&P/ASX 200 Index (ASX: XJO) experienced a partial rebound after the Australian Bureau of Statistics (ABS) revealed steady unemployment at 4.3% today.

The seasonally adjusted unemployment rate held last month amid an 18,000 increase in the number of people employed.

The number of unemployed people fell by 4,000, while the participation rate dropped 0.1% to 66.8%.

Sean Crick, ABS head of labour statistics, said:

Growth in employment was driven by full-time workers, which rose by 53,000 people in March.

This was partly offset by a fall in part-time employment of 35,000 people.

Full-time employment increased by 29,000 for men and 24,000 for women.

Part-time employment fell by 19,000 for men and 16,000 for women.

ASX 200 rebounds then resumes downward trend

The ASX 200’s partial rebound after the jobs data was released at 11.30am was short-lived.

The local bourse has been in the red all day as the US and Iran consider an extension to their two-week ceasefire.

The market is also absorbing the news of a major fire at one of Australia’s two oil refineries today.

The ASX 200 is currently down 0.21% to 8,960.1 points.

Meanwhile, the Australian dollar has lifted to 71.9 US cents, its highest level in four years.

The increase comes as the market ascribes a 67% chance of an interest rate rise next month.

The Reserve Bank board meets on 4-5 May.

As of yesterday, the market had a 67% expectation of a rate rise, up from 62% a week ago.

Higher interest rates tend to support the AUD against the USD because they increase returns on Australian assets relative to US assets.

RBA not confident interest rates are high enough

Analysts at Trading Economics said the jobs data reinforced the Reserve Bank’s view that the labour market remains relatively tight.

The jobs market has demonstrated resilience despite business and consumer confidence tanking due to the global fuel crisis.

Earlier this week, Deputy Reserve Bank Governor, Andrew Hauser, said inflation was already rising before the Iran war, and the fuel crisis was an additional shock, adding more pressure to businesses.

Hauser said:

The rates will have to go to a level that bring inflation back to target … And if that means them going higher, it means them going higher.

I wouldn’t say we have high confidence that we’ve yet set interest rates at the right level…

Hauser said many Australian companies had found it difficult to raise their prices, and the fuel crisis may help them get increases through.

Westpac Banking Corp (ASX: WBC) Chief Economist Luci Ellis, a former RBA Assistant Governor, expects three more interest rate rises.

This would take the cash rate to 4.85%.

A tight jobs market can contribute to resurgent inflation because people are willing to spend when they feel secure in their jobs.

The post Interest rate rise expectations firm on jobs data as Aussie dollar hits 4-year high appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.