Weekly Market Recap 24th February

Stalling wages growth and the 11-year record low Aussie dollar – a sign of the times?

If you were planning to go on exchange anytime soon, you might want to put your plans on hold. Because the last time the Australian dollar traded this poorly, was during the Global Financial Crisis in 2009.

Throughout the past week the domestic economy continued to stagnate with the Aussie dollar decreasing to 65.93 US cents then easing out at 66.01 US cents – marking an 11-year low. The drop came on the back of January data released by the Australian Bureau of Statistics last Thursday, which saw an increase in the jobless rate from 5.1 percent to 5.3 percent. Trend underemployment on the other hand remained at 5.2 percent, offset by a surplus 13,500 jobs being created in January.

As can be seen in the graph below, since flotation in 1983 the Australian dollar has averaged around 0.767 US cents – but currently sits around 10 cents below the average rate. In particular, key statistics strongly indicate a decline in the conversion rate for the short term due to coronavirus concerns.


Sourced: Sydney Morning Herald

While there has been easing geopolitical risk and accommodating policy decisions, an increase in the value of the Australian dollar is now largely dependent on global growth.

Returning to Australian Labour markets, wages growth has remained low with the Wage Price Index (WPI) rising by a mere 0.5 percent in the December quarter. With annual wage growth remaining at 2.2 percent these results were driven by private sector wage growth (which outperformed the public sector at 0.4 percent) – the slowest annual growth rate since the beginning of records in September 1997.  Furthermore there is strong evidence for slack in the labour market with the underemployment rate and underutilisation rate at 8.3 percent and 13.4 percent respectively.

Looking at these conclusions we can deduce that wage price inflation has strongly been contained due to an excess supply of domestic workers.

“piecing it all together”

Despite the probable reduction in jobs caused by the bushfires, recent labour force statistics indicate that there was “no notable impact”. Furthermore re-examining the jobs creation data, it is clear that the net increase was driven by a demand for construction and machinery work involved in the clean-up and redevelopment process. Therefore due to the timely nature of the work involved, there is a possibility for the unemployment rate to deteriorate in the short term as the rebuilding effort is  completed.

If this increase is “material”, it is highly likely that domestic interest rates will be reduced through possibly unconventional monetary policies such as quantitative easing.

In other news, the Group of 20 (G20) financial ministers and central bank governors have gathered together in Riyadh over the weekend to discuss revised growth targets. With phase 1 of the US-China trade deal underway the conference will look into improving global trading systems as well as tackling issues such as climate change.

To financial markets the ASX ended the week softly with the benchmark index dropping by 23.5 points to 7139. Widespread losses occurred with only the financial sector lead by CBA performing positively.

Similarly, overseas markets saw declines with the Dow Jones index closing 0.4 percent below with technology stocks leading the fall.

Capping off this market recap, last Monday marked the end of an era with General Motors announcing the “retirement of  Holden” in Australia and New Zealand. Holden is an Iconic Australia brand and has been an integral part in the development of the Australian economy. It will be missed.

References/ further readings

  • https://blogs.imf.org/2020/02/19/finding-solid-footing-for-the-global-economy/
  • https://www.abc.net.au/news/2020-02-21/australian-dollar-slumps-to-11-year-low-on-jobs-data/11987094
  • https://www.abc.net.au/news/2020-02-20/bushfires-had-no-notable-impact-on-jobs-says-abs/11983768
  • https://www.abs.gov.au/ausstats/abs%40.nsf/mediareleasesbyCatalogue/F00771E26218DFB1CA258479001AAD2E?OpenDocument
  • https://www.commsec.com.au/content/dam/EN/ResearchNews/2020Reports/February/ECO_Insights_190220-Job_vacancies_lift.pdf
  • https://www.commsec.com.au/content/dam/EN/ResearchNews/2020Reports/February/ECO_Insights_210220-Week-ahead.pdf
  • https://www.commsec.com.au/content/dam/EN/ResearchNews/2020Reports/February/PMReport_210220-market-slips-from-highs.pdf
  • https://www.rba.gov.au/publications/rdp/2020/2020-02.html
  • https://www.holden.com.au/announcement