SYDNEY – Australia’s labor market took an unexpected hit in February, with employment plunging by 52,800 jobs, primarily in full-time roles. The downturn, which defied economists’ forecasts of a 30,000-job increase, triggered a decline in both the Australian dollar and government bond yields, as traders increased bets on further interest rate cuts.
Despite the sharp job losses, the unemployment rate remained steady at 4.1%, largely due to a drop in labor force participation, according to government data released Thursday.
The Australian dollar weakened, and yields on three-year government bonds—which are highly sensitive to interest rate expectations—fell further, as traders raised their expectations for an accelerated monetary easing cycle that could extend into 2026.
Rate-Cut Expectations Rise
Rodrigo Catril, a strategist at National Australia Bank Ltd., noted that while the currency dipped on the employment data, the Reserve Bank of Australia (RBA) is unlikely to be overly concerned.
The weak employment data comes one month after the RBA cut its benchmark cash rate by 25 basis points to 4.1%, citing growing confidence that inflation is moderating.
Money markets reacted swiftly, with traders now pricing in a 77% probability of another RBA rate cut in May, up from an even 50-50 chance before the employment report. Additionally, markets now fully anticipate two more rate cuts by early 2026, an increase from the 80% probability previously projected.
Economic and Political Implications
The labor market’s downturn poses a political challenge for Prime Minister Anthony Albanese’s Labor government, which faces a national election by mid-May. Recent polls indicate the opposition Liberal-National coalition holds a narrow lead, as voters blame the government for high living costs, persistent inflation, and rising borrowing expenses.
Treasurer Jim Chalmers acknowledged the labor market’s softening but highlighted the government’s broader economic record.”
Meanwhile, global financial markets remain volatile amid escalating trade tensions fueled by the Trump administration’s tariff threats, targeting both U.S. allies like Europe and Canada, and competitors like China.
Looking Ahead
Bloomberg Economics analysts predict further weakening in Australia’s job market but caution that the RBA is unlikely to rush into aggressive rate cuts unless labor conditions deteriorate across multiple economic indicators.
As economic uncertainties mount, all eyes will be on the RBA’s next policy meeting in May, where the latest employment trends and inflation data will play a crucial role in shaping the central bank’s decision.
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