Australia jobless rate jumps to 4-1/2 year high as RBA bets fade

[SYDNEY] Australia’s unemployment rate climbed to the highest level since November 2021, suggesting the labour market is cooling faster than anticipated and prompting traders to dial back expectations for further interest-rate increases. 

The currency and yields on policy-sensitive three-year government notes both declined after the jobless rate rose to 4.5 per cent against expectations for an unchanged 4.3 per cent, the biggest miss since June last year, official data showed on Thursday (May 21). Employment fell by 18,600 versus an expected 15,000 gain.

The figures add to signs the economy is beginning to sag under the strain of higher borrowing costs and the Iran war-driven energy shock. The Reserve Bank, which delivered its third consecutive hike in May in an effort to restrain a strong inflationary impulse, had forecast unemployment would only rise to 4.4 per cent in mid-2027. 

“With this jump, the RBA won’t hike again,” said Andrew Lilley, chief rates strategist at Barrenjoey Markets in Sydney. The central bank next meets on June 15-16.

The Australian dollar slipped 0.5 per cent after the data and the three-year government bond yield fell as much as 17 basis points, extending an earlier drop. Traders are now wagering about an even chance of a rate hike in August, rising to fully priced in December.

Following the report, economists at National Australia Bank pushed back the expected timing of the RBA’s next hike to August, from June previously. They also cited minutes of the central bank’s May meeting, which showed the board viewed this month’s tightening as providing it with space to see how the Middle East conflict unfolds and how Australian households and businesses respond. 

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“These data can be volatile month to month, but this is a soft print, and one that challenges the RBA’s judgment of labour market resilience,” the NAB economists wrote in a research note.

Australia has seen a wave of layoffs this year, particularly in the tech sector, where companies have blamed AI adoption, restructuring and cost pressures. WiseTech Global, Atlassian and Telstra Group are among firms to announce job cuts, while Commonwealth Bank of Australia and Santos have also reduced staff in recent months. BLOOMBERG