Australia unemployment rate set to rise slightly in December, hiring pace expected to slow

The Australian Unemployment Rate is foreseen at 4% in December.
Employment Change is expected to include a large increase in full-time jobs.
AUD/USD corrected from multi-year lows, sellers retain control.

The Australian Bureau of Statistics (ABS) will release the December monthly employment report at 00:30 GMT on Thursday. The country is expected to have added 15K new job positions, while the Unemployment Rate is expected to tick higher from the 3.9% posted in November to 4.0%. The Australian Dollar (AUD) is at around 0.6200 against the US Dollar (USD), not far from a fresh multi-year low of 0.6130 posted in early January.

The ABS Employment Change report separates full-time from 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 setting the directional path for the AUD.

In November, Australia created 35.6K new job positions, adding 52.6K new full-time positions and losing 17k part-time ones.

Australian Unemployment Rate seen up in December

The Australian Unemployment Rate stood between 4% and 4.2% between April and September 2024, and the decline to 3.9% in November was a positive surprise. The anticipated 4% in December, despite being higher than the previous, is not a level that could trigger any concerns.

Meanwhile, the Reserve Bank of Australia (RBA) has decided to leave the cash rate target unchanged at 4.35%. On the one hand, the Board welcomed that inflation “has fallen substantially since the peak in 2022,” with headline inflation at 2.8% over the year to the September quarter. However, underlying inflation stood at 3.5% in the same period, “still some way from the 2.5% midpoint of the inflation target.” The RBA maintained its inflation forecast, indicating that price pressures won’t fall significantly within the target band until 2026.

Regarding employment, policymakers noted that a range of indicators suggest that labour market conditions remain tight. “The unemployment rate was 4.1% in September, up from the trough of 3.5% in late 2022. But the participation rate remains at record highs, vacancies are still elevated and average hours worked have stabilised. At the same time, some cyclical measures of the labour market including youth unemployment and underemployment have recently declined,” the monetary policy meeting statement reads.

The monthly report does not include wage growth. Such figures are released on a quarterly basis and the latest one showed the annualised Wage Price Index at 3.5%, also above the desired 2.5% midpoint.

Finally, it is worth remembering that financial markets are looking elsewhere: United States (US) President-elect Donald Trump will take office next Monday and pledged to impose massive tariffs. Risk aversion dominates financial boards amid fears his policies will push inflationary pressures up. As a result, the USD reached fresh multi-month highs against most major rivals this week and market players suspect the USD rally is far from over.

When will the Australian employment report be released and how could it affect AUD/USD?

The ABS will publish the December employment report early on Thursday. As previously stated, Australia is expected to have added 15K new job positions in the month, while the Unemployment Rate is foreseen at 4.0%. Finally, the Participation Rate is expected to hold at 67%.

Generally speaking, a better-than-anticipated employment report will 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. At this point, the report has no chance of impacting the upcoming RBA decision.

As mentioned, the AUD/USD pair trades around the 0.6200 mark, not far from an almost four-year low of 0.6130. According to Valeria Bednarik, Chief Analyst at FXStreet, “the current AUD/USD advance seems corrective, given the USD extreme overbought conditions. Caution ahead of Trump’s government favors demand for safe-haven assets.”

Bednarik adds: “From a technical point of view, AUD/USD could soon resume its decline. The daily chart shows that it is up for a third consecutive day, yet still below all its moving averages. A firmly bearish 20 Simple Moving Average (SMA) provides near-term dynamic resistance at around 0.6220. At the same time, the 100 SMA is crossing below the 200 SMA, although both of them develop over 300 pips above the current level, in line with the dominant bearish trend. Finally, technical indicators corrected extreme oversold conditions, but remain within negative levels.”

“A critical resistance comes at 0.6301, January 1st top. Sellers will likely reappear around it, should strong employment figures push it higher. The immediate support, on the other hand, is the January 14 low at 0.6160, followed by the mentioned 0.6130 low. A break below the latter exposes the psychological 0.6000 mark.”

Employment FAQs

How do employment levels affect currencies?

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.

Why is wage growth important?

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.

How much do central banks care about employment?

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

What is the Reserve Bank of Australia and how does it influence the Australian Dollar?

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.

How does inflation data impact the value of the Australian Dollar?

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.

How does economic data influence the value of the Australian 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.

What is Quantitative Easing (QE) and how does it affect the Australian Dollar?

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.

What is Quantitative tightening (QT) and how does it affect the Australian Dollar?

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.