Unemployment jumps to 4.5% in September

Australia's unemployment rate hit 4.5% in September, above expectation and potentially opening the door again to a November rate cut.

It's the highest unemployment (in seasonally adjusted terms) since November 2021, with 34,000 more unemployed people compared to August.

However, there was still a 15,000 increase in the number of employed people - the higher unemployment rate driven by the participation rate (the percentage of people either employed or looking for work) going up.

That's only slightly below the market consensus that 20,000 new people would enter employment in September.

Nevertheless, the unemployment rate is now materially above both RBA forecasts and market predictions.

Rate cut back on the table?

Immediately after the ABS released these labour market figures, the Aussie dollar depreciated against the USD.

High relative interest rates tend to push currency higher as investors can get a better return on things like deposit products and bonds, so markets likely feel this data makes a November RBA cut more likely.

There's also reportedly been a flurry of cash rate futures traders betting on a November rate cut.

However the RBA might look through the volatile seasonally adjusted figure of 4.5% and instead look to the trend figure, steady at 4.3%, according to economists.

Over the past few weeks, economists have been casting doubt on further loosening of monetary policy in 2026, with the Q3 Consumer Price Index expected to show an increase in inflation from July to September.

Since President Trump's latest tariff announcement though, market expectations of a cut increased, and combined with this unemployment surprise the November decision looks to be a live one.

However, inflation remains likely to be the biggest factor, and the monthly reads are pointing towards an upside surprise in the Q3 numbers, set for release 29 October.

Data continues to suggest spending is picking up, the Commonwealth Bank Household Spending Indicator (HSI) showing a 0.6% increase in September.

It's also worth remembering that while the unemployment rate increased, the number of employed people also grew.

What drove the increase was a larger pool of Australians looking for work - which could mean more people are looking for work that weren't before rather than a large number of employees losing their jobs.

Given the RBA has suggested that it still considered an unemployment rate around 4.2/4.3% as a little tight, this increase may not be enough by itself to prompt a November cut if the inflation numbers show price growth is increasing again.

Could RBA follow New Zealand's example?

Last week saw the RBNZ cut the cash rate by 50 bps, dropping down to 2.50% and leaving the door open for further loosening before the end of the year.

Inflation in New Zealand is still near 3%, around where Australia is, so there's a clear contemporary precedent for cutting the cash rate despite price increases being too high.

However, New Zealand's economy appears to be in a significantly worse position than Australia, with GDP declining 0.9% in the June quarter and unemployment above 5%.

At the same time, these latest unemployment numbers may still give the RBA reason to assess the "balance of risks" - possibly making the prospect of a significant economic slowdown like across the ditch seem a little more plausible.

Governor Michele Bullock and the rest of the Board will likely be anxious to avoid a "stagflation" situation similar to what New Zealand faces, where both inflation and unemployment are high and demand stalls.