Traders pull back on chances of a large May cut
Australia’s unemployment rate rose slightly to 4.1% in March, new government data show, as job growth came in weaker than expected—an early signal of labour market cooling even before recent global trade tensions began to take hold.
The Australian Bureau of Statistics reported that 32,200 jobs were added last month, falling short of the 40,000-increase forecast by analysts. Gains were split almost evenly between full-time and part-time employment. Despite the modest rise in unemployment from February’s revised 4%, the jobless rate remains historically low.
Market reaction was swift but muted. The Australian dollar and yields on three-year government bonds trimmed their earlier declines as traders adjusted bets on the Reserve Bank of Australia’s next policy move. While markets are still pricing in several rate cuts this year, the probability of a 50 basis-point cut in May has now been reduced to around 20%, down from roughly 25% before the employment figures were released.
Recent economic signals have been mixed. Last week, RBA governor Michele Bullock urged patience, acknowledging the growing uncertainty stemming from the United States’ new round of import tariffs. Bullock said the central bank was closely monitoring how global trade dynamics might impact demand and supply and reiterated that Australia’s financial system remains well-positioned to absorb external shocks.
The RBA kept its cash rate on hold at 4.1% in its April 1 meeting—just a day before US President Donald Trump unveiled sweeping tariffs, including a 10% levy on all Australian exports to the United States. While the direct economic impact of that move is expected to be limited, economists warn that Australia’s exposure to global markets leaves it vulnerable to ripple effects, particularly as growth slows in major trading partners like China.
State Street Global Advisors APAC economist Krishna Bhimavarapu noted the broader implications: “In the middle of an escalating trade war, Australia’s labour market remains a blessing in disguise. However, slower growth in China may impact Australia eventually.” He forecasts the RBA’s cash rate will fall to 3.1% by the end of the year, adding, “it is ideal for the RBA to deliver rate cuts to further safeguard Australia’s economy.”
Some analysts like Callam Pickering, economist at global job site Indeed Inc., believe a more aggressive monetary response may be required.
“Carnage in financial markets, high levels of economic uncertainty and a suddenly weaker economic outlook makes another rate cut in May all but certain. I now expect the RBA to deliver rate cuts in each of their next three meetings, with a possibility that they deliver a super-sized cut in May,” Pickering said.
Meanwhile, labour market trends suggest that maintaining current levels of employment growth may become increasingly difficult. Bloomberg Economics’ James McIntyre estimates that 32,000 jobs must be added each month to keep the unemployment rate steady.
The jobs data arrives as Prime Minister Anthony Albanese’s Labor government enters a critical stretch ahead of the May 3 election. With polling pointing to a possible hung parliament, neither of the major parties may hold a clear majority, raising the likelihood of post-election negotiations with minor parties to form a government.
