Australia's Employment Crossroads: Why the RBA Rate Cut Looms and AUD Faces Downside Risk

The Australian labor market has reached a precarious equilibrium. While the unemployment rate held steady at 4.1%, the underlying data reveals a bifurcated reality: full-time employment surged, while part-time work collapsed, and youth unemployment crept upward. This divergence underscores growing labor market fragility, which could force the Reserve Bank of Australia (RBA) to abandon its hawkish stance earlier than anticipated—putting downward pressure on the Australian dollar (AUD).

The Full-Time/Part-Time Divide: A Warning Signal

The May 2025 employment report shows 38,700 full-time roles added, a sign of resilience in sectors like healthcare and construction. However, part-time employment plummeted by 41,100, with 889,800 part-time workers still seeking full-time hours. This dynamic isn't just cyclical—it reflects structural shifts. The decline in part-time work often precedes broader labor market softening, as businesses trim flexibility before cutting permanent positions.

The RBA will view this split as a red flag. While the headline rate is stable, the underemployment rate remains stubbornly elevated at 5.9%, and youth unemployment has risen to 9.2%. These metrics suggest a labor market struggling to deliver meaningful opportunities for many—a scenario that could pressure the RBA to act preemptively.

Retrenchment and Job Mobility: The Silent Recession

Two lesser-discussed metrics are flashing caution:
- Job mobility has dropped to 8%, the lowest in three years, indicating reduced labor turnover and hiring confidence.
- The retrenchment rate rose to 1.7%, up from 1.4% a year ago.

These trends signal a labor market “freezing” as businesses become more cautious. The RBA's current stance—keeping the cash rate at 3.85% since late 2023—may no longer be appropriate.

AUD/USD: Technical Levels and RBA Policy Crossroads

The AUD has been range-bound between 0.6400 and 0.6520 since early 2025, with traders waiting for a catalyst. A dovish shift from the RBA could break this stalemate.

Historically, the AUD weakens when the RBA signals easing, as it did in 2020-2021. If the RBA hints at a rate cut in its August meeting—citing softening labor market data—the AUD/USD could test 0.6300, with further downside to 0.6150 if a cut materializes.

Investment Strategy: Short AUD/USD Ahead of RBA Decisions

• Positioning: Short AUD/USD at current levels, with a stop-loss above 0.6550.
• Target: 0.6300 initially, then 0.6150 if the RBA eases.
• Risk Management: Monitor RBA commentary on labor market “slack” and inflation. A stronger-than-expected CPI report could delay easing and cap AUD losses.

Conclusion: The RBA's Dilemma

The RBA faces a conundrum: inflation is moderating, but wage growth remains sticky. A stable unemployment rate buys time, but the part-time employment collapse and rising youth unemployment will eventually force its hand. Investors should prepare for a rate cut by year-end, which would solidify the AUD's downward trajectory. The AUD/USD's 0.6400-0.6520 range is a trap; break lower, and the path to 0.6000 opens.

Stay nimble—and short the AUD while the RBA's patience lasts.