Employment in Australia rose beyond forecasts in June, although the jobless rate still edged up as more people went in search of work, leaving the question of whether rates should rise further.

The data slightly increased investors' expectations for a rate hike by the Reserve Bank of Australia (RBA) in August, with swap markets now indicating a 20% probability, up from the previous 12%.

The three-year bond yield increased by 4 basis points to 4.019%, while the Australian Dollar briefly rose to $0.6735, though it ended the day flat, Reuters reports.

Figures from the Australian Bureau of Statistics published on Thursday revealed that net employment increased by 50,200 in June compared to May, surpassing market forecasts of 20,000. Full-time employment saw a rise of 43,300, marking the second consecutive month of strong gains.

Despite expectations for a steady outcome, Australia’s jobless rate inched up to 4.1% from 4.0%. The participation rate increased to nearly an all-time high of 66.9%, while hours worked rose by 0.8% as fewer workers than usual took holidays during the month.

“The labour market is slackening, with the upward drift in the unemployment rate becoming more entrenched. But the market remains is a very tight position,” stated Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

“The current pace of employment growth suggests demand is resilient and cost pressures will remain. We think the RBA will stay the course and keep rates on hold, but August is certainly a live meeting.”

The central bank has kept interest rates steady for five consecutive meetings, but policymakers are debating whether the current policy rate of 4.35% is sufficiently restrictive, given that inflation remained high at 4% in the last quarter, above the target band of 2-3%.

A lot will hinge on the Q2 consumer price report set for release on 31st July, with inflation anticipated to increase and surpass the central bank's forecasts.