With the labor market showing strong improvement, the outlook should be positive, however this may be slightly dampened by evidence that a cooling economy may be hurting companies intentions to hire more workers. Tuesday, National Australia Bank releases its May business survey. Recent surveys have shown that, despite higher fuel, wage, and borrowing costs, businesses do have a positive outlook for their futures and have confidence in the economy. The next day lists the Westpac consumer confidence survey for June. Confidence fell 6 percent during May after the Reserve Bank raised rates 25 basis points, but should have recovered slightly as consumers become accustomed to the higher rate. Thursday has the RBA bulletin for May to provide figures on the foreign exchange activity of the bank for April. Also released will be consumer inflation expectations for June. Mays expectations revealed that the majority felt prices would rise considerably. Expectations for June may be slightly less severe after last months rate hike but the price of energies will be in the back of Australians heads.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Last week, Australia started with 5 announcements on Monday. AiG performance of service index fell from 56.3 to 49.3 in May to below the expansionary mark. The unexpected contraction in the service sector is due to higher rates and fuel prices cutting into budgets. Next, TD securities released inflationary numbers showing a 0.3 percent rise in prices from April to May and a 3.2 percent rise from May 2005. This third straight gain in prices brings annual inflation well above the RBAs target. Unfortunately, after the RBA raised rates at their meeting last month, the economy has shown signs of cooling and another rate hike to attempt to cool inflation may be detrimental. On a more positive note, ANZ job advertisements rose the most in 6 months, 7.7 percent, in May after falling the month prior. This improvement was immediately overshadowed by disappointing company operating profit in the first quarter. Profits were expected to rise 2.5 percent, but instead barely grew at 0.1 percent. Profits declined as rising wages and energy costs ate up revenues. Company inventories only saw moderate growth during the first quarter. During the 2 hours in which the data was announced, the currency moved very little. Tuesday started with the Westpac-ACCI survey of industrial trends for the second quarter showing that business confidence rose over the past few months. The current account deficit unexpectedly narrowed to A$13.999 billion in the first quarter, demonstrating rising import prices and weather-disrupted export shipments may not affect economic growth nearly as much as expected. Traders chose to concentrate on the next two negative pieces of news however. Instead of rising 0.8 percent as expected, home loans in April fell by 0.5 percent as high borrowing costs continue to deter people from taking on mortgages. Investment lending also fell by 2 percent during April. On the mixed releases the aussie saw a 25 pip drop before losing an additional 100 pips later in the day. On Wednesday, the aussie fought to stay afloat as it traded within a 40 pip band, helped slightly by a day of positive releases. Central was the RBAs announced that it would keep its target interest rate at 5.75 percent. Inflation does loom, but the economy is still having trouble digesting the last rate hike and a pause will allow for some time to breathe. GDP growth for the first quarter was better than expected, advancing 0.9 percent, with 3.1 percent annualized growth. The expansion was driven by household consumption and business investment, a signal that the economy has been able to withstand the high interest rate and price of oil. Closing out a busy week on Thursday were impressive employment figures. The jobless rate unexpectedly fell 0.2 percent to 4.9 percent in May. Magnifying this positive news, the participation rate rose in May to 64.5 percent. Employers hired 4.5 times more workers than economists expected, adding 56,000 jobs. This surprisingly positive improvement in the labor market allowed the aussie to gain back 50 pips of formerly lost ground. As oil and metal prices recovered a bit late Thursday and into Friday, the aussie was able to pick up its head, gaining about 100 pips against the dollar, to close out the week down slightly at $0.7481.
