Stronger Aussie dollar outpaced by gains in oil price

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Job advertisements; Petrol price

  • Petrol prices are set to rise – but modestly. The rally in the Australian dollar has been outpaced by gains in regional oil prices. According to the Australian Institute of Petroleum the national average retail pump price fell just 0.1 cents a litre last week to 123.5 cents a litre.
  • The job market continues to strengthen. The Advantage internet job index rose by 2 per cent in October, led by gains in accounting and engineering. The ANZ index of job ads rose by 0.6 per cent – the weakest increase in six months.

What does it all mean?

  • A lot of people of have been recently asking the question why has petrol prices not fallen given the recent rally in the Australian dollar? And it is the simple fact that the global oil price has been matching and in fact outpacing the gains in the Aussie dollar. The Nymex crude oil price reached fresh two year highs overnight, while the Singapore unleaded price is now holding at a just over six-month high in US dollar terms.
  • Interestingly the recent strength in the global oil price is largely due to the weakness in the US dollar rather than a substantial rise in oil demand. The sharp slide in the US dollar across a basket of currencies has resulted in strong demand across the entire commodities complex. Investors are attempting to hedge US dollar exposure – a result that ensures even regional oil prices will remain well supported in the near term.
  • While the Singapore unleaded price has recorded sharp gains, the strength of the Aussie dollar has ensured that any rise in domestic pump prices is likely to be more circumspect. The Singapore unleaded price has risen by 4.3 per cent in the past week while in Australian dollar terms the rise is a much more sedate 1.1 per cent. The recent strength of the Australian dollar has so far, been modestly outpaced by the rise in the global oil price. As such CommSec expects pump prices to rise by 1-2 cents a litre and hold close to $1.25 a litre in the next fortnight.
  • While the economy appears to be struggling for momentum, one of the key leading indicators – job advertisements – is still pointing higher, albeit at a more sedate growth pace. According to the Advantage job index, jobs ads have now risen for an unprecedented 14 consecutive weeks. The ANZ job ads series has highlighted that job ads are holding at the best levels in 21 months, however the growth in job advertisements held at the weakest levels in six months.
  • The sustained improvement in jobs growth and resulting limited capacity in labour market has been an area of Economic Insights Stronger Aussie dollar outpaced by gains in oil price November 8 2010 2
    concern for the Reserve Bank. However given the more modest improvement in jobs ads and the latest rate hike it is likely that jobs growth will be more circumspect in coming months. The cautious consumer attitudes that are prevalent will keep a lid on selling prices in the near term and as such businesses are likely to be more cautious about future hiring.

  • In the longer term, sliding unemployment and a much tighter labour market are likely to be part of the economic landscape adding to inflationary pressures – particularly if growth holds above trend as the Reserve Bank growth forecasts suggest.
  • For employers, the tasks of attracting and retaining staff will prove to be challenging over the next year. Generation Y are again looking at their best options in a more fluid job market and that may lead to higher wage costs as businesses try to keep staff happy.

What do the figures show?

Job advertisements:

  • The Advantage internet job index rose by 2.0 per cent in October and job ads have now risen for an unprecedented 14 consecutive weeks. In October, gains were recorded in accounting (6.3 per cent) and
    engineering (5.4 per cent) but losses were recorded by human resources (-2.9 per cent) and legal (-2.8 per cent).
  • The combined number of internet and newspaper job advertisements, as tracked by ANZ, rose by 0.6 per cent in October, the smallest gain in six months. Internet job ads rose by 0.6 per cent in the month, while newspaper job ads fell by 0.3 per cent. In annual terms job ads are up 34.6 per cent off a low base.

Petrol prices:

  • According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 0.1 cents per litre to 123.5 cents a litre in the week to November 7.
  • The metropolitan price rose by 0.1 c/l to 123.4 c/l, while the regional average price fell by 0.3 c/l to 123.8 c/l.
  • Petrol prices across states in the past week were: Sydney (up 1.1 cents to 124.4 c/l), Melbourne (down 0.9 cents to 122.7 c/l), Brisbane (up 0.4 cents to 125.8 c/l), Adelaide (down 0.1 cents to 120.5 c/l), Perth (down 0.6 cents to 120.0 c/l), Darwin (down 0.7 cents to 126.9 c/l), Canberra (up 2.0 cents to 125.0 c/l) and Hobart (down 0.6 cents to 127.9 c/l).
  • The national average wholesale (terminal gate) hit an 11-month low of 111.6 cents a litre on October 1. After hitting two month highs of 115.3 cents a fortnight ago, the terminal gate price is holding at 115.0 cents today. The key Singapore unleaded petrol price rose by US$3.83 (4.3 per cent) to US$93.63 last week. And in Australian dollar terms Singapore gasoline rose by $1.03 (1.1 per cent) over the week to $93.08 a barrel.

What is the importance of the economic data?

  • The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
  • Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum. National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions

What are the implications for interest rates and investors?

  • The job market will be central to interest rate deliberations over the next year. Employers are still actively looking for workers – in part due to economic conditions but also in large part due to demographic influences and a reduction in migrants to fill vacancies.
  • Given the anticipated pickup in economic growth over the next year, one of the best solutions is to increase migration, and thus labour supply, rather than to choke off demand with higher interest rates.

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