Strong Australian Job Growth Fuels RBA Rate Cut Debate

Australia’s job market beat expectations in April, complicating expectations around interest rate cuts. Employment surged by 89,000 jobs—far exceeding the 20,000 forecast—marking the biggest monthly gain in over a year. The growth was led by a 65,000 jump in full-time female employment, with the unemployment rate steady at 4.1% and the participation rate near record highs at 67.1%. However, hours worked remained flat, showing some slack beneath the surface.

Despite the labor market's resilience, markets still anticipate the Reserve Bank of Australia (RBA) will cut interest rates by 25 basis points to 3.85% at its meeting next Tuesday. Driving this expectation are cooling inflation—headline CPI held at 2.4%, with core inflation slowing to 2.9%—and rising global risks, particularly from U.S. tariff policies.

Bond yields rose on the data, with three-year yields hitting 3.669%, the highest since early April, and the Australian dollar edged up 0.1% to $0.6435.

Economists, including those at AMP and TD Securities, say strong job growth doesn’t rule out further policy easing, though the rate cut cycle is expected to be shallow. The RBA held rates at 4.1% in April but signaled a readiness to adjust policy if needed.

While unemployment is projected to peak at just 4.2%, wage growth remains moderate, and job ads are stabilizing above pre-pandemic levels. Analysts now expect only 75 basis points of cuts by year-end, scaled back from 100bps due to easing U.S.-China tariff tensions.

With inflation returning to the RBA’s 2–3% target band for the first time since 2021, the central bank is balancing a strong labor market against fragile consumer demand and weak productivity as it considers gradual monetary easing ahead.