Australia's weak employment report spurred investor bets on a curve steepening, signaling expectations that the Reserve Bank of Australia (RBA) is close to ending its interest rate hikes [1]. Trading volumes for September Australian bank bill futures surged 2.5 times on May 21 compared to the previous day, while activity in June contracts doubled, reflecting heightened market activity ahead of RBA decisions [1].
Australian shares rose 1.5% to close at 8,621.70 points on May 21, marking the best finish in a week after the weak April jobs figures dampened near-term rate hike expectations [2]. The probability assigned by the market to a June RBA rate hike fell sharply from 20% to 10%, though the cash rate is still expected to reach 4.6% by the end of 2026, implying one more 25 basis point increase from the current 4.35% rate [2].
Economist My Bui of AMP noted that the RBA prefers to see a sustained rise in unemployment over two to three months before changing policy. She said, "The RBA would prefer to see a sustained increase in unemployment rate for 2-3 months to change their stance but one month moves tend to be noisy" [2]. This could mean the central bank is unlikely to act on a single weak report.
Sector movements reflected shifting investor sentiment. Mining stocks, including BHP Group and Rio Tinto, rose over 3%, with BHP up 3.1% and Rio Tinto gaining 3.2%, amid hopes for progress on a US-Iran peace deal [2]. Conversely, energy stocks declined 1%, while financial stocks advanced 1.5%, with the four major Australian banks rising between 0.9% and 2.3% [2].
Trading volumes for Australian bank bill futures had already surged earlier in 2026 following weak employment data, with notable jumps in trading on September and June contracts [1]. Australian shares had also closed up 1.5% on May 21 as investors scaled back expectations for immediate interest rate hikes by the RBA [2].
The next key moment for markets will be the RBA's upcoming policy decision, as investors watch for signs on whether the central bank will pause rate rises or continue tightening to temper inflation.
