Australian unemployment unexpectedly fell in December as the economy added more jobs than expected, reinforcing the Reserve Bank’s view that the labor market remains tight ahead of the February policy decision
The unemployment rate fell from 4.3% to 4.1%, beating economists’ forecast of 4.3%, according to Australian Bureau of Statistics data released Thursday. Employment increased by 65,200 positions, led by full-time jobs, and far exceeding the expected increase of 27,000.
Policy-sensitive three-year government bond yields hit their highest level since November 2023, while the currency soared to its highest level in more than a year. Money markets now estimate a nearly 60% chance of an interest rate hike in February, up from less than a third before the jobs data. The stock trimmed its gains.
The labor market reading, along with next week’s quarterly inflation data, are crucial data for policymakers ahead of the RBA’s policy meeting on February 2-3. The central bank could be approaching a turning point in which it will have to decide whether to keep the key interest rate unchanged or opt for an increase to help contain renewed inflationary pressures.
“The RBA will feel vindicated in its long-held view that the labor market remains tight, lowering the bar for next week’s CPI reading that could produce a rate hike in February,” said Sean Callow, senior analyst at InTouch Capital Markets in Sydney.
The RBA implemented a short easing cycle between February and August last year, when it reduced the key interest rate by a total of 75 basis points, to 3.6%. However, at the December policy meeting, Governor Michele Bullock said further easing is unlikely in the near term, and that an increase could be the next move.
Earlier this month, RBA deputy governor Andrew Hauser described inflation as “too high” and echoed Bullock’s remarks, saying Australians have probably already seen the last cut of the easing cycle. At the same time, he noted that the interest rate-setting board is taking a patient approach to controlling inflation.
The RBA operates under a dual mandate that aims to keep inflation at the midpoint of its 2-3% target while attempting to keep the economy at maximum sustainable employment.
