Aussie slips as September payrolls drop 39,300; jobless rate at five-year high of 4.7%

The debate at the Reserve Bank is no longer about when the next hike will come but whether it happens at all, and a pause now looks the more likely near-term outcome. The Australian dollar is consequently out of line with the rest of the market. Gold and the major currencies have gained against the US dollar as Treasury yields ease, while the Aussie has remained near the levels touched right after the data, since the narrowing outlook for domestic rates is offsetting broader dollar weakness. Further underperformance of the Australian dollar is probable on crosses such as AUD/NZD and AUD/JPY should investors continue to scale back their RBA hike expectations. The volatility in the numbers means the next jobs report, along with the RBA's revised forecasts in November, will carry additional significance.

The September jobs report was a weak one, and the market's willingness to price a November RBA increase largely disappeared with it.

Summary:

• September's employment count declined by 39,300, compared with forecasts for a 20,000 gain. The August figure was restated lower, at 29,300 versus the earlier 39,500.
• Full-time positions increased by 34,400, while part-time work fell 73,700 — the weakest month in five years.
• At 4.7% (4.72% before rounding), unemployment was unchanged and above the 4.6% forecast. The prior month's reading was lifted to 4.7%.
• Labour-force participation dropped to 66.8% from 67.1%, under the 67.0% forecast.
• There was a 0.1% increase in hours worked, while underemployment inched up to 6.3%.
• Markets put roughly a 15% chance on an RBA hike in November, down from just under 50% earlier in the month; December is priced near 40%.
• Australia's three-year yields declined by about 10bp, and the Aussie fell and has held near its lows.

Traders pulled back on expectations of another Reserve Bank of Australia rate increase after September employment unexpectedly fell and the jobless rate held at a five-year high of 4.7%.

Figures released Thursday by the Australian Bureau of Statistics put the monthly fall in employment at 39,300, far below the roughly 20,000 gain that had been predicted. The prior month's gain was trimmed to 29,300. Part-time work accounted for the entire decline, with a 73,700 drop that was the worst in five years, while full-time jobs rose 34,400.

The jobless rate came in at 4.7%, above the 4.6% that had been expected. August's figure was revised up to 4.7% from 4.6%, though by a slim margin: unrounded, the rate was 4.72% in September versus 4.65% in August. A sharp fall in participation, to 66.8% from 67.1% against an expected 67.0%, dampened the rise in unemployment, since fewer people were looking for work. Hours worked gained 0.1%, and the underemployment rate ticked higher to 6.3%.

The ABS cautioned against reading too much into the seasonally adjusted numbers, citing continued volatility. The timing is awkward for the RBA, which uses the employment data to gauge how tighter policy is affecting the economy. The full-time/part-time split and the participation swings have both been erratic from month to month.

Still, the underlying trend is softer. Unemployment averaged 4.6% in the quarter, well above the RBA's forecast, so the bank is likely to revise its projections up at the November meeting. With a dual mandate of price stability and full employment, a weaker jobs market tilts the risks around further tightening toward balance.

Markets were quick to respond. The probability assigned to a November RBA hike declined, and a move before the first half of 2027 is no longer favoured. Three-year Australian government bond yields fell roughly 10 basis points.

The Aussie slid on the data and has remained close to its post-release lows, a contrast with gold and most major currencies, which have climbed as Treasury yields declined.

The RBA's calendar for the year still has two more meetings to come.