Australia's unemployment spikes, Aussie sinks

Carla Gottgens | Bloomberg | Getty Images

Australia's economy unexpectedly lost jobs in January while the unemployment rate spiked to levels not seen in 13 years, data showed on Thursday, sending the Australian dollar crumbling.

The number of people employed shrank 12,200 in the month, according to figures from the Australian Bureau of Statistics, versus a Reuters poll expecting an addition of 5,000 jobs.

That pushed the the jobless rate up to 6.4 percent, the worst showing since August 2002 and much higher than the 6.2 percent print expected. Unemployment had been stuck in a range of 6.1-6.3 percent since June last year.

Full-time employment fell by 28,100 in January and part-time employment was up 15,900, seasonally adjusted, the ABS said.

Meanwhile, the number of unemployed people looking for full-time work increased 200 to 551,800 and the number of unemployed people only looking for part-time work increased 34,300 to 243,400.

Participation in the workforce remained steady at 64.8 percent of the working age population.

The data add to the case of further monetary easing. The Reserve Bank of Australia cut rates last week for the first time since August 2013 by a quarter point to a fresh record low of 2.25 percent.

The market now implies a 60 percent probability of a rate cut in March, and over 90 percent for April, Reuters reported. It even moved to price in a sizeable chance rates would hit 1.75 percent late this year.

No respite for the Aussie

The embattled Aussie dollar (AUD) took a further hit on the news dropping as far as $0.7641, from $0.7718 before the data, pulling closer to a six-year low of $0.7627 touched last week. It has slipped nearly 2 percent so far this week and 18 percent since September.

"Unfortunately for AUD bulls, the decline shows little sign of ending, especially as the RBA appears to want an even weaker currency given the continuing drop in Australia's terms of trade," Mitul Kotecha from Barclays said in a note, adding the Aussie is still around 9 percent overvalued based on the bank's calculations.

According to a fresh note from ANZ, which recommended a sell on the currency, the fundamental case for a weaker Aussie – a struggling economy, loosening monetary policy and negligible yield advantage – has continued to erode investor confidence.

"High net worth individuals in Asia have been reportedly shying away from AUD paper, while the recent political disruptions have seen investors more broadly questioning the viability of the current fiscal position, and the sovereign's AAA rating," ANZ's Daniel Been said.

Prime Minister Tony Abbott survived a leadership challenge this week, although his plummeting popularity has left many analysts doubtful he'll remain in power for much longer.