The Australian dollar fell on Thursday after a weak jobs report reduced the likelihood of an interest rate cut in May. Meanwhile, the New Zealand dollar failed to capitalize on data showing the economy is emerging from recession. However, significant pockets of weakness remain in its economy.
The Australian dollar fell 0.3% to $0.6339, after closing the overnight session little changed. It now faces resistance at $0.6391 and $0.6409.
The New Zealand dollar fell 0.5% to $0.5788. It closed Wednesday little changed after reaching a 2025 high of $0.5831 on Tuesday. Despite these earlier gains, it faced significant resistance later in the session.
That night, the Federal Reserve held interest rates steady, as widely expected. However, policymakers still expect two interest rate cuts this year, despite inflation driven in part by US tariffs.
This decision was welcomed by Wall Street, where the dollar fell after Treasury yields fell.
Australian jobs decline and rate cut odds rise
Recent data showed that employment in Australia unexpectedly fell in February, ending an impressive run of gains. However, the unemployment rate remained low at 4.1% thanks to a decline in the labor force participation rate.
Given these figures, investors increased the probability of a May interest rate cut to 78%, compared to the previous 70% forecast. They also added 6 basis points to the total easing this year, which stands at 67 basis points.
“The combination of falling employment and participation makes this a ‘soft’ jobs report,” said Gareth Eyre, head of Australian economics at the Commonwealth Bank of Australia.
New Zealand: Growth Emerges from Recession, but Economy Remains Weak
Although Eyre doesn’t believe the Reserve Bank of Australia will be affected by a single weak jobs report, he noted that the weak inflation report expected next Wednesday could make the April meeting of the central bank’s policy meeting of paramount importance.
In New Zealand, data showed that the economy has emerged from recession, growing at a 0.7% rate in the final quarter of the year.
However, the New Zealand dollar failed to capitalize significantly on these figures. According to the Reserve Bank of New Zealand, growth in the final quarter was better than expected. However, analysts noted that this expansion followed two quarters of severe contraction in the economy.
Analysts at ANZ noted that the expansion in the final quarter follows two periods of severe contraction, meaning that the fundamentals of growth in the economy remain somewhat weak. They emphasized: “Given the starting point, there is ample scope for the economy to grow rapidly in the near term without adding inflationary pressures.”
Interest Rate Cut Expectations in Australia and New Zealand
Expectations of monetary easing in both countries remain. In Australia, exchange rates are indicating two or three interest rate cuts this year, increasing pressure on the Australian dollar.
In New Zealand, data showed the economy rebounded in the last quarter, but economic conditions remain fragile. Therefore, the possibility of an interest rate cut remains.
The Australian dollar fell significantly due to weak jobs data in Australia, which reduced the chances of a rate cut in May. Conversely, the New Zealand dollar failed to benefit from growth data showing the New Zealand economy emerging from recession, due to pockets of weakness. Despite these mixed data, markets remain awaiting upcoming economic developments, particularly central bank decisions in both countries.
Assessing and Managing the Impact of Natural Disasters on Labor Force Statistics
The floods that struck North Queensland in February 2025, particularly in Townsville, caused some disruption to the collection of Labour Force Survey data. The Australian Bureau of Statistics reviewed the February data and confirmed there was no impact on the quality of the estimates for Australia and Queensland, or the broader “Rest of Queensland” region. No adjustments to the weighting and standard estimation approach were required for February.
The Australian Bureau of Statistics also reviewed data at the regional level (SA4 level), where some minor localized data effects were apparent. In the February detailed Labour Force release, the Townsville and Cairns data for February will be removed. The Australian Bureau of Statistics will review the February estimates for these regions when March data are available and consider whether any additional processing is required.
In the meantime, data for these regions will remain available in the MRM1 data cube of the detailed release. These sample regional labour market statistics are the optimal source of regional labour market data and are not affected by short-term data collection disruptions. The Australian Bureau of Statistics is also monitoring the impact of Tropical Cyclone Alfred and the resulting flooding on the March Labour Force Survey data. A summary of the March data assessment and any necessary revisions will be included in the next release.
In terms of trends, in February 2025:
The unemployment rate remained at 4.0%. The participation rate remained at 67.0%. The number of employed persons increased to 14,547,800. The employment-to-population ratio decreased to 64.2%. The underemployment rate remained at 5.9%. Monthly hours worked increased to 1.980 million.
According to seasonally adjusted data, in February 2025:
The unemployment rate remained at 4.1%. The participation rate decreased to 66.8%. The number of employed persons decreased to 14,513,200. The employment-to-population ratio decreased to 64.1%.
