Australia's Unemployment Rate Holds at Five-Year High; Chance of Rate Hike Eases

Australia's Unemployment Rate Holds at Five-Year High; Chance of Rate Hike Eases. At a Glance: Australia's employment fell by 39,300 in September, while the market had expected a gain of 20,000. The unemployment rate held at 4.7%, its highest level in five years. The decline in employment was accompanied by a 34,400 increase in full-time jobs, while part-time employment […]

Australian employment decreased by 39,300 people in September; Meanwhile, the market was expecting an increase of 20,000 people.

The unemployment rate remained at a five-year high of 4.7 percent.

The drop in full-time employment was accompanied by an increase of 34,400 people, but part-time employment decreased by 73,700 people.

The probability of an interest rate increase at the November RBA meeting reached about 15%; At the beginning of the month, this probability was slightly less than 50%.

Australian three-year bond yields fell by about 10 basis points and the Australian dollar fell after the data was released.

Australian employment fell by an unexpected 39,300 people in September, and the unemployment rate remained at a five-year high of 4.7 percent. The release of the figures prompted traders to reduce bets on another rate hike by the Reserve Bank of Australia (RBA) and pushed the Australian dollar lower.

Data from the Australian Bureau of Statistics showed that the country's employment decreased by 39,300 people in September; The figure was much lower than the market forecast for an increase of about 20,000 people. The employment increase statistics in August was also revised from 39 thousand 500 people to 29 thousand 300 people.

September's decline was driven entirely by a decline in part-time employment, which fell by 73,700 to its weakest performance in five years. On the other hand, full-time employment increased by 34,400 people.

The unemployment rate remained constant at 4.7%; higher than the forecast of 4.6% of the market. The August unemployment rate was also revised from 4.6 to 4.7 percent. However, a more accurate figure shows that the unemployment rate was 4.72% in September and 4.65% in August.

A sharp decline in the participation rate from 67.1 to 66.8 percent, while the market expected 67 percent, limited the increase in the unemployment rate; Because fewer people were looking for work. Working hours increased by 0.1 percent and the underemployment rate rose slightly to 6.3 percent.

The Australian Bureau of Statistics cautioned against interpreting the seasonally adjusted figures, pointing to continued volatility in the data. The fluctuations come as the Reserve Bank of Australia relies on labor market data to assess the impact of contractionary monetary policy on the economy. Monthly changes in the mix of full-time and part-time employment, as well as the participation rate, have fluctuated widely.

However, the general trend of the labor market is weakening. The average unemployment rate in the quarter reached 4.6%; The figure was much higher than the central bank's forecast and will probably force the institution to raise its forecasts at the November meeting. Given the RBA's dual mandate of maintaining price stability and full employment, the weakening labor market has further increased the balance of risks about continued contractionary policy.

The reaction of the markets and the Australian dollar

Markets reacted quickly to the data. The priced-in probability of a rate hike in November fell to around 15%; This probability was slightly less than 50% at the beginning of the month. The probability of a rate increase in December was also close to 40%. Markets no longer see an interest rate hike before the first half of 2027 as the dominant scenario.

Australia's three-year government bond yield fell by around 10 basis points. The Australian dollar also fell after the release of the data and remained close to its lowest level since the release of the data.

The performance set the Australian dollar apart from the broader market trend: gold and major currencies rose against the dollar as US Treasury yields fell, but the Australian dollar remained near bottoms after the data release. A narrower outlook for interest rate hikes domestically has offset the effect of broader US dollar weakness.

If markets continue to discount the likelihood of an RBA rate hike, the Australian dollar is also likely to underperform against currencies such as the New Zealand dollar and the Japanese yen. Given the high volatility in the data, the RBA's next report and revised forecasts in November will be more important.