Australia’s Employment Plunge Prompts Boost in Rate-Cut Bets

The unexpected decline in Australian employment in February caused speculators to increase their bets on more interest-rate cuts this year, which in turn caused the currency and government bond rates to decline.

Compared to a predicted 30,000 gain, employment fell 52,800, primarily from full-time positions, according to official figures released Thursday. Due to a decline in participation, the unemployment rate remained at 4.1%.

As traders strengthened their bets on a short-term rate decrease and the extension of the easing cycle beyond 2026, the euro fell, and the yield on policy-sensitive three-year bonds continued its earlier slide.

According to Rodrigo Catril, a National Australia Bank Ltd strategist., “the Aussie is losing ground on the headlines, but from a policy perspective, the RBA is unlikely to be disturbed by the data.” He noted that the central bank anticipates the unemployment rate to be 4.2% in June of this year, but it has stayed at 4.1%.

As it grows more confident that inflation is abating, the RBA decided to lower the cash rate by a quarter percentage point to 4.1% last month. Meanwhile, a wave of tariff announcements and threats from the Trump administration have rocked international markets, targeting rivals like China and US friends like Canada and Europe.

The work market is expected to deteriorate in the future. However, we believe the RBA would be hesitant to implement quick cash rate cuts until the decline becomes evident on all metrics.

Before the announcement, it was a coin toss, but money markets are now pricing a roughly 77% likelihood that the RBA will soften in May. The RBA is making two further cuts after that, and by the first quarter of 2026, it has also been entirely priced by traders, up from an 80% possibility before the employment data.

The job market’s decline coincides with a challenging period for the job administration of Prime Minister Anthony Albanese, which is getting ready for an election that is scheduled for mid-May. Due to high inflation and high borrowing rates, the administration has been held accountable for the recent rise in living expenses, giving the opposition Liberal-National alliance a modest survey lead.

Treasurer Jim Chalmers stated, “Today’s data shows some of the expected softening in the labor market.” “We still have the lowest average unemployment of any government in the last 50 years, even though our economy is still struggling and people are still under pressure.” Despite rising borrowing prices and a faltering economy, Australia’s labor market has grown remarkably well over the last two years.

“The decline in employment in February was caused by fewer older workers going back to work,” stated Bjorn Jarvis, head of labor statistics at ABS. “This comes after these age groups saw increased employment in recent years, especially in 2024.”

Governor Michele Bullock was wary about the possibility of additional easing even after lowering rates last month because she was concerned that a protracted labor market tightness may reignite pricing pressures. The next meeting of the RBA is scheduled for March 31–April 1.

The employment report for Thursday also revealed:

• Employment increased by 1.9% annually.
• After being corrected to 67.2%, the participation rate dropped to 66.8%.
• Part-time jobs fell by 17,000, while full-time jobs fell by 35,700.
• The rate of underemployment dropped to 5.9%.