Australia's unemployment rate fell in October, with employment growth far exceeding expectations, signaling continued tightness in the labor market and reinforcing the Reserve Bank of Australia's (RBA) decision to hold rates steady last week. Data from the Australian Bureau of Statistics showed the unemployment rate dropped to 4.3% in October, below September's 4.5% and market forecasts of 4.4%. Employment surged by 42,200—all in full-time roles—well above the anticipated 20,000 increase.
Following the release, the Australian dollar and three-year government bond yields—sensitive to monetary policy—jumped, while Australian equities posted their steepest decline since September. Swaps pricing now indicates less than a 40% chance of an RBA rate cut by mid-2026, a sharp reversal from Wednesday’s 70% probability for a cut by September 2026.
Su-Lin Ong, Chief Economist at RBC Australia, noted, "Given the RBA’s stance that the labor market remains tight, the output gap is positive, and inflation is sticky, this data reinforces their view and supports prolonged policy caution." She added, "In an economy with limited spare capacity, labor market resilience suggests the current mildly restrictive 3.6% policy rate is both appropriate and sustainable."
The jobs figures are critical for the RBA’s rate-setting committee. Labor market strength and concerns about reigniting inflation pressures are key reasons for the central bank’s cautious approach to easing. Last week, the RBA held rates steady as expected, with Governor Michele Bullock signaling no imminent further easing after three cuts this year.
Market expectations have shifted dramatically since September, when traders anticipated two more rate cuts this cycle. Three-year bond yields have since surged about 40 basis points. Meanwhile, demand for long-dated bonds has narrowed the yield gap between three- and 10-year bonds amid expectations of reduced government debt issuance this fiscal year.
Diverging policy outlooks between the RBA and the U.S. Federal Reserve have also widened the yield premium of Australian long-term bonds over Treasuries to the highest since August 2024, supporting the Aussie dollar’s position as one of the top-performing G10 currencies since September 1.
Christopher Wong, Strategist at OCBC Singapore, said, "We maintain a bullish bias for the Aussie, supported by stable global growth, a weaker U.S. dollar, resilient Chinese economic data, and the RBA nearing the end of its easing cycle."
The RBA projects unemployment to hold at 4.4% over its forecast horizon, with slower employment growth this year and next. Its latest forecasts assume a cash rate of 3.4% by mid-2026, implying just one more cut by June 2025.
Australia’s labor market remains a bright spot, though it has cooled from post-pandemic highs. The RBA still views it as tight, citing elevated job vacancies, widespread hiring difficulties, strong unit labor costs, and full-employment models.
Additional data this week pointed to economic resilience: consumer optimism outweighed pessimism for the first time in nearly four years, while Q3 housing loans hit a record high, driven by investor demand. Retail rents in Sydney’s CBD have risen 3% since 2022, fueled by tourism recovery, infrastructure upgrades, and luxury and dining demand, with vacancy rates dropping as foot traffic rebounds to 84% of pre-pandemic levels.
Michael Tuck, Head of Retail Leasing & Advisory, noted, "We’re seeing positive momentum in Australia’s CBD retail sector, with Black Friday and Christmas trading expected to further boost seasonal performance."
However, the robust recovery has raised concerns about inflation resurfacing. RBA Deputy Governor Andrew Hauser warned that policymakers face new challenges as supply constraints during economic recovery could reignite price pressures.
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