Australian Dollar Rises on China Bounce, Jobs Jump

   By James Glynn

        SYDNEY--The Australian dollar rose sharply Thursday amid a recovery in Chinese share prices and stronger-than-expected employment data for June.

        Still, the gains came despite a 10% drop in the price of iron ore to its lowest level in six years. Economists warned that if the commodity price slide continues, the likelihood of an interest rate cut by year end would rise appreciably.

        At 0630 GMT, the Australian dollar was trading at US$0.7489, compared with US$0.7417 late Wednesday.

        Chinese shares reversed some of their recent losses Thursday, restoring some confidence in Beijing's efforts to rescue its struggling stock market.

        The Shanghai Composite rose 5% at 3683.04, after bobbing between gains and losses Thursday morning. The Shenzhen market rose 3.6%. Both indexes have lost around a third of their value in the past month. Stocks in Hong Kong, which suffered their worst trading session since the global financial crisis on Wednesday, rose 3.4%.

        Locally, Australia's unemployment rate rose to a lower-than-expected 6.0% in June from a downwardly revised 5.9% in May. Economists had expected an unemployment rate of 6.1% in June.

        The number of people employed rose by 7,300, compared with expectations that the number would remain flat, the Australian Bureau of Statistics said Thursday.

        Economists said Australia job market was starting to look a lot stronger and the Reserve Bank of Australia might need to revise away its current forecast that unemployment will rise to around 6.5% over the next year.

        "History shows that the RBA tends not to cut further when the unemployment rate is past its peak. So, at the minimum, today's numbers are likely to reduce the chance of any near-term cut in the cash rate," said Paul Bloxham, chief economist at HSBC, Australia.

        Still, the outlook for the Australian dollar will be largely dictated by commodity prices and the health of China's markets and economy.

        "It's early days, but if China looks like going towards 5% growth and bulk commodities keep falling with only modest declines from the Australian dollar, the RBA may well be in play before year end," said Warren Hogan, chief economist at ANZ.

        The of price of iron ore, Australia's biggest export, plummeted an eye-watering 11% Wednesday to US$44.10/ton, tumbling well below the decade-low of US$46.70 recorded in April.

        Some economists forecast worse to come.

        Citi said in a research note that it thinks the value of the steelmaking commodity will head into the US$30s in the second half of this year, adding that a glut is expected to rapidly appear.

        -Write to James Glynn at james.glynn@wsj.com

        (END) Dow Jones Newswires

        July 09, 2015 02:33 ET (06:33 GMT)

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