Unexpected Unemployment Surge Puts Pressure on RBA: Will Rates Be Cut in August?

Why Is Australia’s Unemployment Rate Suddenly Rising?

The latest jobs data delivered a nasty surprise: June’s unemployment rate climbed to 4.3%, up from 4.1% where it had hovered for half a year. Full-time positions actually shrank—never a good sign. This comes after two months of weak hiring, suggesting the labor market’s resilience might finally be cracking under the weight of higher interest rates. Remember, the RBA hiked rates twice this year (February and May), and those moves are now rippling through the economy.

How Is the RBA Reacting to Mixed Economic Signals?

Governor Michele Bullock has been walking a tightrope. On one hand, inflation remains above target (hovering NEAR 3% in Q2). On the other, growth is sluggish, and now jobs are weakening. Her cautious approach—waiting for full quarterly CPI data rather than reacting to volatile monthly numbers—makes sense… until it doesn’t. Traders expected a July rate cut but got radio silence instead. Now, with unemployment rising, the pressure’s mounting for August action.

What’s the Inflation vs. Jobs Tradeoff?

Here’s the dilemma: The RBA’s cash rate (currently 4.35%) is still restrictive—it’s above the “neutral” level that neither stimulates nor slows the economy. That gives them room to cut. But Bullock’s team worries about reigniting inflation, especially after pandemic-era supply shocks. Meanwhile, Treasurer Jim Chalmers is getting antsy—he’s publicly noted the bank’s mere 50bps of cuts this year while other central banks eased aggressively. It’s a political minefield.

Could the RBA Repeat Its Post-Pandemic Mistake?

Rewind to 2021: While the Fed and ECB jacked up rates, the RBA moved timidly. That helped unemployment stay near 50-year lows despite global chaos. But now, their delayed tightening might backfire. If they don’t cut soon, today’s employment gains could unravel—and voters won’t forgive that. As one Sydney-based trader grumbled, “They’re so scared of being wrong on inflation that they’re ignoring the recession risks staring them in the face.”

What’s Next for Australian Rates?

All eyes are on July 31’s Q2 inflation report. A soft print (say, under 2.8%) likely seals an August cut. But if prices surprise to the upside? Bullock might hold firm, even as jobs bleed. Either way, Canberra’s patience is wearing thin. As for markets, they’re pricing in a 70% chance of a cut by September—but as this month proved, the RBA loves to wrongfoot expectations.

FAQs: Your Burning Questions Answered

How high could unemployment go if the RBA doesn’t cut rates?

Economists warn that holding rates at current levels could push joblessness toward 4.7% by year-end—a level not seen since the pandemic lockdowns.

Why does the RBA care more about quarterly inflation data?

Monthly CPI readings cover only about 63% of goods/services and are notoriously revised later. The quarterly figure is the Gold standard.

Has the Australian dollar been affected?

Absolutely. The AUD slid 1.2% against the USD after the jobs data, reflecting bets on easier policy ahead.