Australia unemployment rate expected to signal a broadly stable labor market
- The Australian Unemployment Rate is forecast to have held steady at 4.1% in May.
- Employment Change is expected to post a modest 25K advance after a 89K gain in April.
- The Australian Dollar should benefit from upbeat figures regardless of the market’s sentiment.
The Australian Bureau of Statistics (ABS) will release the May monthly employment report at 01:30 GMT on Thursday. The country is expected to have added 25K new job positions, while the Unemployment Rate is projected to hold steady at 4.1%. Ahead of the announcement, the Australian Dollar (AUD) retains its overall strength, and the AUD/USD pair trades near the 2025 high at 0.6545.
The Australian April employment report was upbeat, as the economy added 89K new job positions, including 59,5K full-time positions and 29,5K part-time ones.
The ABS Employment Change separately reports full-time and part-time jobs. According to its definition, full-time jobs imply working 38 or more hours per week and usually include additional benefits, but they mostly represent consistent income. On the other hand, part-time employment generally offers higher hourly rates but lacks consistency and benefits. This is why full-time jobs are given more weight than part-time ones when it comes to measuring the health of the labour market.
Australian Unemployment Rate seen steady in May
The Australian Unemployment Rate is expected to have remained unchanged at 4.1% in May, marking a third consecutive month of stability.
Employment data is relevant as it’s part of the Reserve Bank of Australia (RBA) mandate. The Monetary Policy Board sets the monetary policy “in a manner that it believes best contributes to both price stability and the maintenance of full employment in Australia.”
The minutes of the May meeting showed policymakers’ concerns revolved around the United States (US) President Trump's tariffs, and “how a persistent increase in trade barriers would affect the global economy.”
Regarding the labour market, the Board noted it had remained in line with the previous forecasts. “The unemployment rate had been around 4.1 per cent since the middle of 2024, while the underemployment rate had declined a little over that period. “Employment had recovered from the surprising fall recorded in February,” the document shows.
Other than that, some policymakers questioned whether this might see wages growth slow more noticeably than currently forecast.
Meanwhile, recent data showed that wage growth in the country has increased to 3.4% in the year to March, marking the first time wage growth has risen since the June quarter of 2024. Wages grew 0.9% on a quarterly basis in Q1 2025, up from the 0.7% posted in the previous quarter, according to the ABS.
Generally speaking, the upcoming Australian employment report, if the outcome matches expectations, is expected to have a limited impact on the Australian Dollar (AUD), as it is unlikely to affect future RBA monetary policy decisions. The central bank is scheduled to meet again in July.
Finally, financial markets may not pay much attention to data amid the ongoing Middle East crisis. The escalation of the Iran-Israel conflict and the involvement of the US maintain speculative interest in a risk-off mood. Additionally, the lack of progress in trade negotiations adds to the dismal sentiment.
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 25K new job positions in the month, while the Unemployment Rate is foreseen at 4.1%. Finally, the Participation Rate is expected to hold at 67.1%.
A better-than-anticipated employment report will likely boost the AUD, even if the more significant increase comes from part-time jobs. However, the advance could be more sustainable if the increase comes from full-time positions. The opposite scenario is also valid, with soft figures weighing on the Australian currency.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair trades near a recently achieved 2025 high at 0.6552, while posting higher highs on a weekly basis, keeping the dominant bullish trend alive. Given concerns about US economic progress within the trade war and its involvement in the Middle East crisis, the US Dollar (USD) seems poised to remain under pressure. In such a scenario, the AUD/USD pair may quickly find buyers should a discouraging employment report push it lower.”
Bednarik adds: “An upbeat employment report, on the other hand, can push the AUD/USD pair towards fresh 2025 highs, with the 0.6600 threshold in sight."
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
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.
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