Australia Labor Market Surprisingly Resilient in May

A job seeker (R) shakes hands with a recruiter.
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A job seeker (R) shakes hands with a recruiter.

Australian employment beat expectations with a small rise in May while the jobless rate surprised by ticking down to 5.5 percent, a resilient result that lengthened the odds on a cut in interest rates next month.

Thursday's data from the Australian Bureau of Statistics showed the country added 1,100 net jobs in May, a solid outcome given analysts had expected a drop of around 10,000 following an outsized gain of 45,000 the month before.

That left employment up almost 100,000 so far this year and the jobless rate all but stable, countering some of the worst fears of an economic slowdown.

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"The unemployment rate is holding at levels that look pretty good compared to just about everywhere else," said Michael Blythe, chief economist at Commonwealth Bank.

"The market was hyping these numbers as the smoking gun for a rate cut in July, but they certainly reduce the odds. The market's now only got about a one-in-three chance of a cut."

A run of soft economic data recently had led some investors to wager the Reserve Bank of Australia (RBA) would ease gain next month, having last cut rates to a record low of 2.5 percent in May.

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Swap rates now put the chance of a move in July at 31 percent, compared to 50 percent early this week. Still, interbank futures remain fully priced for a cut to 2.5 percent by September at the latest.

"Cuts probably are still coming, as unemployment drifts up, but for now it suggests there is no urgency, particularly with the currency where it is," said Stephen Walters, chief economist at JPMorgan.

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The local dollar has fallen sharply in the last couple of months amid weak commodity prices and changing views on when the U.S. Federal Reserve might start tapering its stimulus.

On Thursday, the Australian dollar initially rose on the jobs report, but the lift was swamped by a surge in the yen as Japanese stocks tumbled. The local dollar was down 1.5 percent against the yen, but up a shade on its U.S. counterpart.