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The Australian dollar came under pressure after it was revealed Australia's unemployment rate rose to its highest since 2021, raising the chances of further interest rate reductions.
Australia's unemployment rate unexpectedly jumped 0.2% to 4.5% in September, according to the ABS, which also dished out a 0.1% upwardly revised 4.3% rate for August.
This was after the economy added 14.9K jobs in September, which was below the consensus estimate, and confirms there was no impressive rebound from the previous month's shock contraction of 11.9K.
The participation rate rose 0.1% in August and September to reach 67.0%, meaning more people entered the job market, statistically boosting the unemployment rate.
"The Australian dollar weakened on the unexpectedly strong rise in the Australian unemployment rate in September, with the rate now at a high since late 2021," says a daily market briefing from Saxo Bank.
The pound to Australian dollar exchange rate (GBP/AUD) is higher by 0.40% on the day, building on an impressive recovery that was sparked by last Friday's trade war shock.
China dealt a blow to the global economy by announcing all foreign manufacturers must seek China's permission to export any of their products that use even the slightest trace of Chinese rare earths.
That China-inspired global shock registered most significantly with China-linked assets such as the Aussie.
Fast forward to Thursday and the currency has this underwhelming domestic data to add to its concerns.
"With a surprise increase in the unemployment rate to 4.5%, September’s labour force data point to an ongoing easing in the labour market," says Aaron Luk, an economist at ANZ.
"The data do make the upcoming RBA November Board meeting more challenging," he says.
The Reserve Bank of Australia was thought to be close to the end of its rate cutting cycle owing to an ongoing resilience in the domestic economy.
Inflation sits above the target 2.0% level and further reductions in interest rate risk stoking inflationary pressures.
However, the RBA will judge a deterioration in the labour market as a downside risk to inflation, offering a window to lower interest rates.
A lower base rate will automatically weigh on short-term Australian government bond yields, a key driver of the currency.
"Today’s data lends weight to our view that there is still a good chance the RBA will cut rates in November," says Ryan Wells, an economist at Westpac.
The dual impact of rising China-U.S. trade tensions and a second consecutive soft labour market report could just have ended the Aussie dollar's charge higher for the time being.