January 23, 2020 / 1:10 AM / a month ago

UPDATE 1-Australia jobless rate falls to 9-month low, may head off rate cut

* Employment beats forecasts with rise of 28,900

* Jobless rate dips to 9-month low of 5.1%

* Market pares chance of Feb rate cut from RBA

By Wayne Cole

SYDNEY, Jan 23 (Reuters) - Australian employment outpaced forecasts for a second month in December pushing the jobless rate to a nine-month low, a much-needed improvement that could forestall a near-term cut in interest rates.

The local dollar climbed 0.47% to $0.6874 as the market pared the chance of an easing from the Reserve Bank of Australia (RBA) at its next policy meeting on Feb. 4.

“The RBA may still decide to cut rates in February because the current rate of wage growth isn’t enough to meet its inflation target,” said Marcel Thieliant, a senior economist at Capital Economics.

“But with spare capacity in the labour market starting to diminish, there is now less urgency to do so.”

Thursday’s data showed 28,900 net new jobs were created in December, beating forecasts of 15,000 and on top of a surprisingly strong 38,400 gain in November.

The unemployment rate edged down a tick to 5.1%, the lowest reading since march last year and again under forecasts.

The breakdown on employment was a little less encouraging, with all the new jobs being part-time and full-time positions actually dipping by 300.

Still, investors wagered the fall in unemployment would weigh against the need for an imminent rate cut. Futures shifted to imply a 20% chance of a quarter-point easing next month, compared with 50% ahead of the jobs data.

A move to 0.5% was still priced at 80% by May, though again that was down from almost 100% before the report.

The RBA has long argued unemployment needs to fall to at least 4.5% to deliver a desperately-needed lift in wage growth, which has been stuck around 2.3% for a year or more.

That was a major reason it cut rates three times last year to a record low of 0.75%, though with only limited success.

The bank’s Board specifically highlighted the risks to unemployment at its December meeting, saying policy would be reviewed in February should the outlook deteriorate.

NATIONAL TRAGEDY

The dip in unemployment will be a relief to the conservative government of Prime Minister Scott Morrison, which has drawn widespread criticism for its reaction to bushfires sweeping the country, and charges it was not doing enough to address climate change.

The fires have smothered Sydney and Melbourne in smoke and scared off tourists at the peak of the summer holiday period. It has also darkened the mood of consumers when they were already fretting over stagnant wages and mountains of debt.

Economists estimate the cost to Australia’s A$2 trillion ($1.37 trillion) economy could be as high as A$5 billion and perhaps shave 0.25 points off gross domestic product in the December and March quarters.

“The current bushfire season – underway since September – is a national tragedy,” said NAB chief economist Alan Oster. “The economic impact in bushfire-affected areas has been extreme.”

“While it is unlikely that the fires were a major influence on national December retail sales, there may be much more substantial second round impacts in January and February.”

Adding to the woe has been the sudden outbreak of a new type of coronavirus in China which could curb tourism over Lunar New Year and beyond. Australia is a major holiday destination for the Chinese with 1.4 million trips made annually.

$1 = 1.4609 Australian dollars Reporting by Wayne Cole; Editing by Sam Holmes

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