The newswires are buzzing this morning with the news of Australian unemployment rate that has declined to a three-year low at 5.6 percent. The decline in unemployment rate indicates a recovery in the economy; yet, the Australian dollar hasn’t been much of a performer today and rightly so. The Australian dollar is currently trading at 0.746, down 0.3 percent so far today.
So why did the Australian dollar fail to gain from the lower unemployment rate today?
Let’s look at the jobs figure closely. Full-time employment gains were 11,500 for the month of August. 15,400 jobs were lost in the part-time segment resulting in a net job loss of 3,900 for the month of August. Yet the unemployment rate declined. The puzzle lies in the participation rate, which has declined by 0.2 percent to 64.7 percent.
Lower participation rate actually indicates weakness in the economy rather than strength. It is also important to note that since the beginning of the year, participation rate declined by half a percent. Without such decline, the unemployment rate would have been above 6 percent. The Australian dollar has broken below a key support around 0.75 area and further decline is likely.
