SYDNEY: Australian unemployment stayed low in January and hiring remained strong, validating the Reserve Bank of Australia’s (RBA) view that the economy can withstand tighter monetary policy without a sharp rise in layoffs.
The jobless rate held at 4.1%, compared with economists’ forecast of 4.2%, data from the Australian Bureau of Statistics showed yesterday.
Employment advanced by 17,800, driven entirely by full-time roles. The prior month’s hiring figure was also revised higher.
The data come after the RBA became the first monetary authority in the world to raise interest rates this year.
The employment report is a crucial piece of data for policymakers as they plot their campaign to return inflation to the 2%-3% target while maintaining a healthy labour market, a strategy the central bank says is still “appropriate.”
In response to the data, the currency pushed slightly higher and the yield on policy-sensitive three-year government bonds climbed seven basis points to 4.31%, extending an earlier gain, as traders bolstered bets on a follow-up rate hike in May.
Most economists and money market traders reckon the RBA will leave rates unchanged at 3.85% at its March 16-17 meeting.
The figures show “the RBA has more work to do,” said Marcel Thieliant, Asia-Pacific head at Capital Economics.
“With wage growth remaining stubbornly high and trimmed mean inflation well above the upper end of the RBA’s 2%-3% target band, the case for further tightening by the bank therefore remains strong.”
Yesterday’s report cemented the Australian dollar’s more than 5.5% gain this year, the second-best performing Group-of-10 currency, fuelled by policy divergence with the United States, where traders are pricing rate cuts.
A lift in commodities and continued investor interest in non-US assets have also supported the Aussie.
Bets on the US easing come despite the latest signals from some policymakers that they are open to the possibility of hikes. Minutes of the US Federal Reserve’s (Fed) Jan 27-28 policy meeting this week underscored that tension.
Officials appeared surprisingly wary of cutting rates with several even suggesting further tightening could be warranted should inflation prove stubborn.
If the United States were to go down that path, it would suggest that inflation pressures are re-emerging across advanced economies – or that central banks have yet to secure a durable return to price stability.
In other words, renewed Fed tightening would raise uncomfortable questions about whether the global disinflation narrative has been premature.
The RBA undertook a brief easing cycle between February and August last year when it cut the key rate by a total of 75 basis points to 3.6%.
However, it staged an about-face in February as price pressures gathered momentum.
The central bank this month revised up its estimates for core inflation by half a percentage point and forecast inflation will remain above target this year despite an assumption of two rate hikes in its latest forecasts.
Last week, governor Michele Bullock said inflation running “with a three in front of it” is unacceptable and that the rate-setting board stands ready to hike again if inflation proves entrenched.
While Australia has struggled to bring inflation back under control, unemployment has remained very low by historic standards. Bullock said the RBA estimates full employment – or the NAIRU – at 4.6%.
The strength in the data prompted Oxford Economics to upgrade Australia’s outlook.
It now expects unemployment to rise to 4.6% by mid-2027, from mid-2026 previously.
“For the RBA, the message is clear: the labour market remains firm,” said Harry Murphy Cruise, Oxford’s head of economic research. — Bloomberg
