Australia employment rebounds in May, jobless rate dips

Australian employment rebounded in May, while the jobless rate fell from its highest level in four-and-a-half years, data from the Australian Bureau of Statistics showed Thursday. The figures signal a labour market that is proving more resilient than many forecasters had anticipated, and they reduce the pressure on the Reserve Bank of Australia to begin easing policy.

The unemployment rate had climbed steadily over the prior year, peaking in April at a level not seen since the end of 2020. The May decline, though small, breaks that trajectory. Employment rose roughly in line with population growth, which economists said was enough to absorb new entrants without putting additional strain on the supply side.

For the RBA, the data shifts the balance of risks. A tight labour market tends to keep wage growth elevated, which feeds into services inflation. The central bank has signalled it wants to see clear evidence that inflation is returning to the 2-3% target band before it considers rate cuts. This print does not provide that evidence. Economists at several Australian banks said the board could hold rates steady for longer, and might even need to raise them again if the quarterly CPI due in July comes in hot.

The Australian dollar firmed immediately after the release, climbing about 0.2% against the U.S. dollar. Traders reduced bets on a rate cut in the third quarter. The currency's path now hinges on whether the domestic inflation data confirms the labour market's strength, or whether it shows enough easing to let the RBA hold its current course without further hikes.

Broader implications flow through to interest-rate expectations. The 3-year bond yield rose 4 basis points on the day, reflecting a slightly higher probability that the cash rate stays above 4% through year-end. The 10-year yield moved less, consistent with the view that long-term rates are still driven mostly by global forces, especially the U.S. Treasury curve.

For households, the resilient jobs market supports income and consumption, which in turn props up domestic demand. That dynamic complicates the RBA's task. If consumer spending does not slow enough, inflation pressures may prove sticky even as the global economy decelerates.

The next major test for the RBA outlook is the second-quarter CPI print, scheduled for late July. That release will give the board its most complete picture of inflation trends ahead of the August policy meeting. Until then, the May employment data keeps the door open to either a hike or a cut, depending on what the price numbers show. Traders can track the broader forex market reaction via AlphaScala's forex market analysis page.

The ABS is due to release June employment figures in mid-July.