RBA Governor Glenn Stevens set for MP grilling on Australian dollar, interest rates, jobs

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RBA Governor Glenn Stevens set for MP grilling on Australian dollar, interest rates, jobs

By Max Mason
Updated

The Australian dollar and unemployment are likely to be in the spotlight as Reserve Bank of Australia governor Glenn Stevens steps up in front of federal politicians in southern Sydney on Friday.

At 9:30am AEDT, he will address the House of Representatives Standing Committee on Economics at Club Central in Hurstville, 10 days after the central bank cut its overnight cash rate to a record low 2.25 per cent. It was the rate adjustment in 18 months.

RBA Governor Glenn Stevens will address the House of Representatives Standing Committee on Economics at Club Central in Hurstville on Friday morning.

RBA Governor Glenn Stevens will address the House of Representatives Standing Committee on Economics at Club Central in Hurstville on Friday morning.Credit: Ben Rushton

"The governor rarely gives anything away, maintains a neutral tone, there has been an increasing emphasis on the AUD level in recent years, as well as the unfortunate reminder that these can be wasted sessions if the politicians don't ask the 'right' questions," said TD Securities head of Asia Pacific research Annette Beacher said.

On Thursday, Australian Bureau of Statistics reported that January's jobless rate rose to 6.4 per cent - its highest level since August 2002 -as the economy shed 12,200 jobs. The number of unemployed rose 34,500, the biggest monthly increase since September 2012.

Despite threatening to hit a fresh near six-year low, the Australian dollar recovered from US76.44¢ and is now trading at US77.49¢.

"The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies," Mr Stevens said in a statement on the bank's monetary policy decision. The Aussie has shed 18.5 per cent against its US counterpart since July 1, when it was worth about US95¢.

"It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

Over the last year, iron ore has plunged more than 50 per cent.

Last week, the RBA revised lower its GDP forecasts for calendar 2015 to between 2.25 per cent and 3.25 per cent, down from between 2.5 per cent and 3.5 per cent. The central bank doesn't expect growth to return to trend levels, about 3.25 per cent, until the second half of 2016.

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While not releasing a specific figure, in its statement on monetary policy last Friday, RBA charts showed a forecast for unemployment to peak at about 6.5 per cent and then pull back as economic growth returns to trend levels, around 2.25 per cent. However, politicians are bound to quiz the RBA chief given yesterday's surprise unemployment jump.

"Overall, the weakness in headline employment, full-time employment and also the gain in the unemployment rate argues that this is a 'weak' report. The 'brighter' spots of an unchanged participation rate and growth in hours worked being insufficient to offset the negatives in our view," Deutsche Bank chief economist Adam Boyton said.

"Looking forward, our monthly employment tracker remains at moderate levels and suggests jobs growth of around 13,000 per month. That is, in our view, insufficient to stop the unemployment rate from rising. As a result it suggests that pressure will remain for, at least, one further rate cut despite the encouraging bounce in consumer sentiment reported yesterday."

Given that a large amount of economists are now forecasting at least one more rate cut in 2015, the issue is bound to be probed by parliamentarians.

Following Thursday's jobless result, markets are now pricing in a 72 per cent chance of a rate cut at the next central bank meeting on March 3, up from a 44 per cent chance at the beginning of the day.

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