Australia’s labor market is showing unexpected strength, with rate-cut expectations now facing a significant rethink.
The Aussie dollar climbed 0.4%, and yields on three-year bonds reached a high not seen since July 31, after data revealed a surprising 64,100 jobs added—more than double the forecast—and unemployment steady at 4.1%.
Both the participation rate and employment-to-population ratio hit all-time highs, signaling that more Australians are seeking and securing employment.
Traders are now pricing in only a 70% chance of a rate cut by the Reserve Bank of Australia (RBA) in February, a notable shift from earlier expectations of a 25 basis-point reduction.
“This will keep the RBA very cautious to join the global easing cycle,” said Eugenia Victorino, head of Asia strategy at SEB in Singapore.
“At this point, risks are pointing to an even later start to the cutting cycle than our forecast of February 2025.”
Despite the slowing economy, job growth remains strong, up 3.1% over the past year.
This is welcome news for RBA Governor Michele Bullock, who is navigating efforts to control inflation without triggering a recession.
However, with interest rates at a 12-year high of 4.35%, the RBA has signaled no immediate plans to lower rates.
The labor market data, alongside inflation figures due later this month, will be key inputs at the RBA’s November policy meeting.
“We see no incentive to shift from our call that the RBA won’t even start cutting rates until 1Q 2025, and there is a chance that even this is too aggressive,” said Robert Carnell, head of Asia-Pacific research at ING Groep NV.
Minutes from the RBA’s September meeting noted that labor market conditions remain tight, especially compared to other economies.
The share of unemployed workers finding jobs is high, and the number of workers losing their jobs remains low.
Thursday’s report also highlighted:
- Full-time jobs surged by 51,600, while part-time positions increased by 12,500.
- The employment-to-population ratio rose to 64.4%.
- The participation rate increased to 67.2%.
- Underemployment fell to 6.3%.
“It’s difficult to imagine the RBA cutting rates when labor market conditions are so tight, productivity growth is weak, and wage pressures remain considerable,” said Callam Pickering, economist at global job site Indeed Inc.
“Something significant would need to change to push the RBA’s hand.”
Business leaders across Australia will also be watching closely, as sustained employment growth amidst a slowing economy may present both opportunities and challenges for sectors reliant on consumer confidence and spending.
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