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Australian Economy Booms, Drives Currency Near Dollar Parity

Australian employers in September added the most workers in eight months, driving the country’s currency toward a record and bolstering the case for the central bank to resume raising interest rates.

The number of people employed rose 49,500 from August, the seventh straight gain, the statistics bureau said in Sydney today. The figure was more than double the median estimate of a 20,000 increase in a Bloomberg News survey of 25 economists. The jobless rate held at 5.1 percent.

Economic growth that the International Monetary Fund forecast yesterday will reach 3.5 percent next year is fueling the local dollar and prompting traders to boost bets for a rate increase next month after officials refrained from acting this week. The mining industry is driving the job boom as Rio Tinto Group and BHP Billiton Ltd. increase coal shipments to China.

“With over a quarter of a million jobs having been added this year, the majority of which have been full time, the economy is rapidly approaching full employment,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. Central bank “officials must be increasingly anxious that wage pressures will intensify, adding further to the nation’s inflation woes.”

The Australian dollar rose to within 2 U.S. cents of parity after the report, climbing to 98.29 cents at 1:55 p.m. in Sydney from 97.64 just before the release. The two-year government bond yield jumped to 4.89 percent from 4.76 percent, set for its biggest one-day advance since May 10.

Full-Time Work

The number of full-time jobs gained 55,800 in September and part-time employment fell 6,300, today’s report showed. The labor participation rate, which measures the percent of the population over 15 years old that has a job or looking for one, was 65.6 percent, compared with 65.4 percent in August, today’s report showed.

Reserve Bank of Australia Governor Glenn Stevens kept the benchmark interest rate unchanged at 4.5 percent this week, while saying that higher borrowing costs will likely be needed “at some point.”

Traders in futures contracts are betting on a 62 percent chance the RBA will raise its key rate by a quarter percentage point next month, compared with the U.S. Federal Reserve’s policy of holding its rate near zero. That divergence has fueled a 9.5 percent gain in the Australian currency against the U.S. dollar this year.

RBA’s Work

The hiring surge threatens to stoke wage inflation, which the central bank aims to keep in a range of 2 percent to 3 percent. An annual gauge of what the RBA calls core inflation, the weighted median, was 2.7 percent in the second quarter.

The gain in the local dollar “complements’ the RBA’s work on monetary policy as lower import prices help cool inflation, said Stephen Roberts, a senior economist at Nomura Australia Ltd. in Sydney. At the same time, costs such as utilities are “rising at a rapid rate” so there is a “big split in consumer prices,” he said.

Stevens said this week that while borrowing costs are close to their average of the past decade, “if economic conditions evolve as the board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.”

RBA Outlook

The RBA forecasts economic growth will accelerate as demand from China spurs investment spending by companies such as Chevron Corp., which is building the A$43 billion ($42 billion) Gorgon liquefied natural gas project in Western Australia.

There are signs of weaker spending by consumers, who account for more than half of gross domestic product, after policy makers increased the benchmark lending rate in six quarter- percentage-point steps to 4.5 percent in May from a half-century low of 3 percent in October 2009.

Retail sales rose 0.3 percent in August, less than the median forecast for a 0.4 percent gain, and imports fell the most since January 2009, the bureau of statistics said this week.

A report today showed Australia’s building industry shrank in September for a fourth straight month, falling 2.4 points to 40.8, according to a survey by the Australian Industry Group and Housing Industry Association released in Sydney today. A reading below 50 shows the industry is contracting.