Australia unemployment rate expected to edge higher in September, signaling cooling labor market

• The Australian Unemployment Rate is forecast to increase to 4.3% in September.
• Australia is expected to have added 17,000 new positions in the month, after losing 5,400 in August.
• AUD/USD is stable around 0.6500 ahead of the announcement, struggling to recover ground.

Australia is set to publish the September monthly employment report on Thursday at 0:30 GMT, with market participants anticipating another tepid outcome, which has become the norm over the last few months.

The Australian Bureau of Statistics (ABS) is expected to announce that the country added 17,000 new jobs in the month, while the Unemployment Rate is forecast at 4.3%, slightly higher than the August figure. The Participation Rate is expected to remain stable at 66.8%.

The ABS reports both full-time and part-time positions through the monthly Employment Change. Generally speaking, full-time jobs entail working 38 hours per week or more, usually include additional benefits, and typically provide consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. That's why the economy prefers full-time jobs. In August, Australia lost 40,900 full-time positions and created 35,500 part-time ones.

Australian unemployment rate expected to tick higher in September

Ahead of the release, financial markets are torn between monetary policy decisions and political woes. On the one hand, the Reserve Bank of Australia (RBA) left the Official Cash Rate (OCR) unchanged at 3.6% when it met at the end of September, amid "signs that private demand is recovering, indications that inflation may be persistent in some areas and labour market conditions overall remaining stable," according to the Board statement.

Employment figures are crucial for monetary policy, as most central banks base their decisions on labor conditions and inflation levels. And regardless of the RBA calling it "stable," the labour market has been giving signs of weakness: The economy lost 1,100 positions in May, added 1,000 in June, and gained an additional 26,500 in July, but then lost 5,400 in August. The Unemployment Rate, which averaged 4.1% throughout the first half of the year, is now forecast at 4.3%. Not a significant uptick, but still at the upper end of the yearly range.

On the other hand, the United States (US) government shutdown and fresh trade tensions between the US and China overshadowed central banks' influence on financial markets. The US government ran out of funding on October 1, and among other things, the release of official data has been suspended until further notice. Speculative interest still believes the Federal Reserve (Fed) will deliver an interest rate cut in its upcoming October meeting. Still, if the shutdown extends, the Fed may choose to hold its fire.

Additionally, US President Donald Trump reignited the trade war with China on Friday by threatening 100% tariffs on imports from the Asian giant. Beijing responded by charging additional port fees on US vessels. Given the tight relationship between China and Australia, renewed trade tensions negatively impacted the Australian Dollar (AUD).

Back in Australia, the RBA meeting minutes showed that policymakers believe the labour market is still a little tight, and forward indicators are steady. Also, RBA's Chief Economist noted that underlying inflation was likely stronger than the central bank had anticipated in Q3. As a result, expectations of further interest cuts have edged sharply lower.

The upcoming employment report could have a limited impact on the forthcoming RBA decision. Generally speaking, a weak report should be negative for the AUD, as it will not only signal a soft labor market but also keep the door open for additional interest rate cuts. The opposite scenario is also valid, with stronger-than-anticipated job creation likely boosting demand for the Australian Dollar (AUD) as it would not only be positive for the economy, but also delay future interest rate cuts.

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

The ABS September report will be released early on Thursday. As previously noted, the Australian economy is expected to have added 17,000 new jobs in the month, while the Unemployment Rate is forecast at 4.3% and the Participation Rate at 66.8%. Market participants will pay close attention to the breakdown between full and part-time positions on that expected 17,000 headline.

Valeria Bednarik, Chief Analyst at FXStreet, notes: "The AUD/USD pair recovers from a fresh multi-week low of 0.6440 posted on Tuesday, as initial fears related to renewed trade tensions between Beijing and Washington receded. Still, the pair struggles to extend gains amid ongoing concerns favoring safe-haven demand. If something, Gold's record run provides modest support to the Aussie."

Bednarik adds: "From a technical point of view, the AUD/USD pair has a limited bullish scope. The daily chart shows a horizontal 100 Simple Moving Average (SMA) providing resistance at around 0.6530, followed by a bearish 20 SMA in the 0.6570 area. Additional gains should revive the bullish case and push AUD/USD towards 0.6610/30. The same chart shows technical indicators advance within negative levels, also limiting the bullish potential. The aforementioned multi-week low at 0.6440 provides immediate support, closely followed by the 200 SMA at 0.6420. A clear breach of the latter should open the door for a decline towards the 0.3370 area."