Key Points

• HSBC says Australia’s latest labour-market data support its view that the Reserve Bank of Australia’s tightening cycle has ended, despite continued month-to-month volatility.
• Employment fell by 15,800 in July, unemployment rose to 4.5%, and labour-force participation declined to 66.9%, indicating a gradual loosening in labour-market conditions.
• HSBC expects the RBA to hold the cash rate at 4.35% before beginning rate cuts from the third quarter of 2027, while slower wage growth adds to evidence of easing labour-market pressure.

HSBC believes Australia’s latest employment figures strengthen the case that the Reserve Bank of Australia has reached the end of its monetary tightening cycle.

The bank described the latest labour-market data as “quite volatile” but increasingly consistent with a gradual loosening trend. July employment fell by 15,800 jobs, while the unemployment rate increased to 4.5%. Labour-force participation also declined to 66.9%.

The result came after a stronger employment reading in June and surprised market expectations, making the latest figures an important shift in the recent labour-market trend.

HSBC Chief Economist Paul Bloxham said the softer-than-expected result suggested the labour market was loosening and potentially doing so somewhat faster than the RBA had anticipated.

Unemployment Continues to Trend Higher

The unemployment rate’s move to 4.5% in July was particularly significant.

The rate briefly reached the same level in April and was otherwise at its highest since November 2021. HSBC views the broader trend as evidence that spare capacity in Australia’s labour market is gradually increasing.

Other measures provide a more mixed short-term picture.

The underutilisation rate and youth unemployment rate both edged slightly lower in July, but HSBC said both measures continue to drift higher when viewed on a trend basis.

That distinction between monthly volatility and the underlying trend is central to the bank’s assessment.

Rather than interpreting one weak employment report as a decisive change in economic conditions, HSBC sees the latest figures as part of a broader, gradual loosening pathway.

Wage Growth Adds to the Evidence

The labour-market picture is also being reinforced by slower wage growth.

According to HSBC’s analysis, the private-sector Wage Price Index increased 0.7% quarter over quarter in the second quarter, equivalent to an annualised pace of approximately 2.8%.

The bank noted that annual wage growth has now slowed to its lowest pace since June 2022.

Slower wage growth is important for monetary policy because it can reduce the persistence of domestic inflationary pressures. For the RBA, a cooling labour market combined with moderating wages could reduce the need for additional rate increases.

HSBC therefore views the wage data as another indication that the labour market is loosening.

HSBC’s RBA Outlook

HSBC’s base case is for the RBA to keep the cash rate at 4.35% before beginning rate cuts from Q3 2027.

The bank’s view is based on the combination of rising unemployment, softer wage growth and the broader trend toward greater spare capacity in the labour market.

HSBC also compared the latest data with the RBA’s August projections. The central bank had forecast an unemployment rate of 4.5% and annual wage growth of 3.3% by the fourth quarter of 2026.

HSBC’s assessment is that unemployment could be moving higher somewhat faster than anticipated, while wage growth is somewhat softer than the RBA’s projection.

Minimum Wage Decision Could Affect the Outlook

One factor could provide some offset to the slowdown in wage growth.

HSBC noted that the minimum-wage decision for award wages took effect from July 1 and could provide some additional support to wage momentum.

That means the trajectory of wages will remain an important variable for the RBA as it assesses the balance between inflation and labour-market weakness.

For now, however, HSBC’s interpretation is that the broader labour-market trend remains one of gradual loosening rather than renewed tightening pressure.

What the Latest Data Mean for Monetary Policy

The July employment figures do not eliminate uncertainty around Australia’s economic outlook, particularly given the volatility in monthly labour-market data.

However, the combination of weaker employment, higher unemployment, lower participation and slower private-sector wage growth provides a more consistent picture of easing labour-market conditions.

For HSBC, that supports the conclusion that the RBA’s hiking cycle has effectively ended.

The next stage of the monetary-policy cycle will depend on whether labour-market slack continues to build and wage pressures remain contained. If those trends persist, the case for eventual rate reductions should strengthen.

Closing Insights

HSBC’s interpretation of the latest Australian labour-market data points toward a gradual transition from monetary tightening to eventual easing. The July employment decline and increase in unemployment, together with softer wage growth, suggest that labour-market conditions are becoming less restrictive.

The key issue is timing. HSBC expects the RBA to maintain the 4.35% cash rate for an extended period before beginning cuts in Q3 2027. The path between now and then will depend heavily on whether the recent loosening trend continues without triggering a renewed inflationary challenge.

For a confidential discussion regarding retail banking strategy, insurance distribution models, customer loyalty ecosystems, digital financial services, or cross-border financial innovation opportunities, contact our senior advisory team.