Unemployment rose to 4.6% in August, and analysts still expect the RBA to raise rates next week.
The Australian dollar held its ground after mixed August labour market data left expectations for a Reserve Bank of Australia (RBA) rate rise next week intact.
AUD/USD trades at 0.7037, sitting on the 200-day moving average band at 0.7040 to 0.7010 identified by Societe Generale, while the Pound to Australian Dollar rate is at 1.8818.
The August release ran as follows:
1. Employment rose 39,500, against the 20,000 the market expected.
2. The unemployment rate lifted to 4.6% from 4.5%.
3. Participation jumped to 67.1% from 66.9%.
4. Hours worked rose 0.7% and underemployment eased to 6.2% from 6.3%.
The Australian Bureau of Statistics cautioned that the transition to its new Labour Force Survey collection model may have had an "unintended impact on August 2026 estimates", warranting some care in interpreting the numbers.
The Signal Beneath the Headline
"While the headline employment gain appears firm, we think the broader signal from the release is one of gradual labour market easing," says ANZ.
The rise in the unemployment rate is consistent with a labour market becoming less tight over time, which ANZ says will ultimately help reduce inflationary pressures.
Employment is still tracking below working age population growth, and the jump in participation reflects cost of living pressures drawing more people into the labour market.
"Labour supply continues to outpace demand, meaning slack is building gradually through higher unemployment rather than outright employment losses," says Ryan Wells, economist at Westpac.
Wells adds that some of August's strength may reflect residual seasonality and could partially unwind in September.
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Talk to a specialistNext Week's Decision
Markets price around a 90% chance of a hike at the RBA's meeting on 29 September.
Commonwealth Bank of Australia expects a 25 basis point increase to 4.60%, and ANZ expects the same next week followed by another in November.
Governor Michele Bullock set out her marker at a CEDA event this week.
"I think that between 4.5 and 5 will probably take enough heat out of the labour market that'll ease pressure on inflation," says Bullock, referring to the unemployment rate.
At 4.6% the August reading sits toward the bottom of that range, according to ANZ, which expects the RBA to acknowledge easing conditions while still describing the labour market as a little tight.
Higher oil prices add to the inflation risk the RBA is guarding against, with Brent crude rising 3.9% to $103 a barrel on Wednesday.
AUD's Rates Support Won't Last Forever
Expectations of RBA tightening have been an important driver of AUD/USD this year; however, CBA sees that changing.
"We expect interest rate differentials and commodity prices to move against AUD/USD in the coming months," says CBA.
The dollar index is near 101.2 after the US composite PMI jumped to 58.4 in September, its highest since July 2021, with the 10-year Treasury yield reaching its highest level since 2007.
US Treasury Secretary Scott Bessent said the US and China have agreed a two month extension to their trade truce, with a longer extension possible when Presidents Trump and Xi meet on Friday.
For the pound, markets price over four Bank of England hikes by this time next year, while CBA expects one in November and looks for that pricing to unwind.
With a hike close to fully priced for 29 September, the guidance decides whether AUD/USD holds the 0.7040 to 0.7010 band that has contained this month's decline.
