Australia’s Unemployment Rate decreases to 4.0% in May vs. 4.0% expected

Australia’s Unemployment Rate dropped to 4.0% in May, compared with the expectations of 4.0% and the previous figure of 4.1%, according to the official data released by the Australian Bureau of Statistics (ABS) on Thursday.

Furthermore, the Australian Employment Change arrived at 39.7K in May from 38.5K in April, compared with the consensus forecast of 30.0K.

The participation rate in Australia increased to 66.8% in May, compared to 66.7% in April. Meanwhile, Full-Time Employment increased by 41.7K in the same period from -6.1K in the previous reading. The Part-Time Employment decreased by 2.1K in May versus 44.6K prior.

Bjorn Jarvis, ABS head of labour statistics, said with the key highlights noted below

"With employment rising by around 40,000 people and the number of unemployed falling by 9,000 people, the unemployment rate fell to 4.0 per cent."

“While the total number of unemployed people fell by 9,000 in May, this followed a 33,000 increase in April. Unemployment was around 24,000 people more than in March, an average increase of around 12,000 people each month.”

”The employment-to-population ratio and participation rate both continue to be much higher than their pre-pandemic levels. Together with elevated levels of job vacancies, this suggests the labour market remains relatively tight, though less than in late 2022 and early 2023.” 

AUD/USD reaction to the Australia Employment report

The Australian Dollar keep their selling bias intact in an immediate reaction to the Australia Employment report. The AUD/USD pair is trading at 0.6657, losing 0.08% on the day.

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This section below was published at 21:30 GMT on Thursday as a preview of the Australia Employment report

 

• The Australian Unemployment Rate is foreseen to contract to 4% in May.
• Employment Change expected to remain tepid, up by 27.5K in the month.
• AUD/USD set to run to fresh multi-month highs with an upbeat report.

Australia is set to release the May employment report on Thursday at 1:30 GMT. The Australian Bureau of Statistics (ABS) is expected to announce the country added 27.5K new job positions in the month, down from the 38.5K gained in April. The Unemployment Rate is foreseen at 4%, easing from the previous 4.1%. Ahead of the announcement, the Australian Dollar (AUD) is up amid broad US Dollar’s weakness. 

Headline Employment Change is split into full-time and part-time positions. Generally speaking, full-time jobs imply working 38 hours per week or more and usually include additional benefits, but they mostly represent consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. That’s why the economy prefers full-time jobs.

According to the April report, seasonally adjusted, the number of people counted as officially unemployed increased by 30,300 in the month, while the number of employed people increased by 38,500. The latter combines an increase of 44,600 part-time positions and a loss of 6,100 full-time jobs. 

Australian unemployment rate expected to ease in May

Market analysts anticipate the Australian Unemployment Rate will ease from the 4.1% posted in April to 4%. April’s level was the highest since March 2022, and was also hit in January this year. 

The decline in full-time employment and the uptick in the unemployment rate in April was seen as a tepid sign of a loosening labor market. Speculative interest would welcome another monthly report in such a line as it could lift the odds for an interest rate cut in the country before the year's end.

The Reserve Bank of Australia (RBA) met early in May, and policymakers decided to leave the benchmark rate at 4.35%. The RBA also warned about inflation risks being on the upside but refrained from reinstating the tightening bias dropped in the previous meeting. Policymakers also noted that inflation is easing more slowly than previously expected. “The economic outlook remains uncertain, and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth,” said the Board’s statement. 

Ahead of the employment report, market players believe the RBA could deliver a rate cut in November and four more throughout 2025. However, sticky inflation and a tight labor market may push the odds further down the road. According to the ABS, the Consumer Price Index rose by 3.6% in the twelve months to April, up from the previous 3.5%. It was the second consecutive month in which inflation posted a small increase, in line with policymakers’ concerns. 

With that in mind, a better-than-anticipated employment report would fuel speculation the RBA will not cut rates until February 2025 and boost the Australian Dollar. 

Ahead of Australian employment figures, the focus was on the United States (US). The Bureau of Labor Statistics (BLS) reported that the  Consumer Price Index (CPI) rose 3.3% YoY in May after hitting 3.4% in April. The CPI remained unchanged on a monthly basis, easing from the previous 0.3%. The core readings, which exclude volatile food and energy prices, were also below forecast and eased from the April readings. The annual core CPI rose 3.4%, while the monthly figure was up by 0.2%. 

The softer-than-anticipated US inflation figures triggered a US Dollar sell-off, prompting AUD/USD higher.

When will the Australian employment report be released, and how could it affect AUD/USD?

The ABS will publish the May employment report early on Thursday. As previously stated, Australia is expected to have added 27.5K new job positions in the month, while the Unemployment Rate is foreseen at 4%. Finally, the Participation Rate is foreseen to hold at 66.7%.

From a technical perspective, Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair nears a relevant high posted mid-May at 0.6713 as optimism reigns. Beyond the 0.6700 mark, the pair can run towards the 0.6700 region with an upbeat Australian employment report, although given the pre-news rally, additional advances without a pullback in the middle seem unlikely. Near-term support can be found at around 0.6630, followed by the 0.6580 price zone.” 

Bednarik adds: “Ultimately, AUD/USD direction will depend on how the data would affect the odds for a rate cut in Australia. It is worth remembering that the Australian interest rate peaked below those of its major counterparts, making it less worrisome should local policymakers decide to delay the decision.” The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative. Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.