Australia's labor market has exceeded expectations—nearly all components of the April employment report came out in the "green zone." While the release had a few flaws, it overall favored the Aussie, as the probability of a rate cut by the Reserve Bank of Australia (RBA) at the May meeting has significantly decreased. In response to the report, the Australian dollar gained several dozen points against the U.S. dollar, rising into the mid-0.64 range. Although AUD/USD sellers then regained the initiative, the importance of today's report remains, and it will likely resurface next week during the upcoming RBA meeting.

According to the published data, Australia's unemployment rate in April remained at the March level of 4.1%, in line with expectations—no surprises here. However, the employment change figures were truly surprising: the number of employed persons surged by 89,000, marking the strongest growth pace since February 2024. The actual result exceeded forecasts by more than four times, as most analysts had expected a 20,000 increase.

A more detailed look at the report reveals that the April rise in total employment was largely driven by full-time employment, while part-time jobs showed more modest growth—59,500 vs. 29,500. March's numbers were also slightly revised upward: from 32,000 to 36,400. However, the structure of that figure was also revised. Initially, full-time employment was reported to have increased by 15,000 and part-time by 17,000. Revised data shows a greater tilt toward part-time employment—12,200 full-time vs. 24,200 part-time. This is a minor flaw but a flaw nonetheless in the March release.

Additionally, it was reported today that the labor force participation rate rose to 67.1% in April, beating most forecasts, which expected it to remain at March's 66.8%. This marks the strongest result since January this year.

What do these numbers mean? Primarily, they suggest Australia's labor market remains tight. Employment growth has been accelerating for the second consecutive month—from 36,000 in March to nearly 90,000 in April.

Given these dynamics, the key question now is: Will the RBA lower the interest rate this month amid labor market tightness, global economic growth uncertainty, and mixed inflation data?

This is far from a rhetorical question, as there's no market consensus. Economists from ANZ, Standard Chartered, and Westpac, for example, believe the central bank will cut rates by 25 basis points at the upcoming May 20 meeting. ANZ analysts argue that the RBA may overlook the strong employment data and focus on the trimmed mean CPI, which, for the first time since Q4 2021, returned to the target range.

Other analysts argue the RBA may hold off on cutting rates—not just because of the labor market strength. One must also consider that headline CPI in Q1 rose more than expected, hitting 0.9% q/q vs. a 0.8% forecast (after two previous quarters of just 0.2% growth). Year-on-year CPI also accelerated to 2.4% (vs. 2.3% forecast). Additionally, the wage price index rose by 0.9% q/q in Q1—the fastest pace since Q1 2024.

The uncertainty surrounding the outcome of the May RBA meeting could strongly support the Aussie—especially if the regulator maintains a wait-and-see stance. In my view, that is the most likely scenario.

But all that's for next week. For now, AUD/USD traders are cautious ahead of Fed Chair Jerome Powell's speech during the U.S. trading session. The pair is trading within the 0.6400–0.6490 range, i.e., between the middle and lower lines of the Bollinger Bands on the D1 timeframe.

If Powell maintains a gloomy tone (he previously warned that new tariffs in the U.S. would accelerate inflation, reduce employment, and slow economic growth), the greenback will come under pressure, and AUD/USD may test the 0.65 level again. On the other hand, if Powell reacts positively to the Geneva meeting results—expressed in a U.S.–China trade truce—the greenback may regain strength, and AUD/USD sellers will try to secure a position in the 0.63 range.

The suspense continues, and in such uncertainty, it's wise to adopt a wait-and-see approach—even despite the strong "Australian nonfarm" report, which, in effect, supports the Aussie.