Australia’s unemployment rate remained low in January while job creation continued at a solid pace, supporting the Reserve Bank of Australia’s (RBA) view that the economy can handle tighter monetary policy without triggering a significant surge in job losses.
Figures released on Thursday by the Australian Bureau of Statistics showed the jobless rate steady at 4.1%, below economists’ expectations of 4.2%.
Employment increased by 17,800 positions, with all of the gains coming from full-time jobs. The previous month’s employment growth was also revised upward, Bloomberg reports.
The figures were released shortly after the RBA became the first central bank globally to lift interest rates this year.
The labour market update is a key input for policymakers as they map out efforts to steer inflation back to the 2%-3% target while preserving strong employment conditions, an approach the central bank says remains “appropriate.”
Following the release, the Australian Dollar edged higher and the yield on policy-sensitive three-year government bonds rose seven basis points to 4.31%, building on earlier gains as traders increased expectations of another rate rise in May.
Most economists and money market traders expect the central bank to keep its benchmark rate steady at 3.85% at its 16-17 March meeting.
Furthermore, the latest figures reinforced the Australian Dollar’s rise of more than 5.5% so far this year, making it the second-strongest performer among Group-of-10 currencies. The rally has been driven in part by policy divergence with the United States, where markets are anticipating interest rate cuts.
Higher commodity prices and sustained investor appetite for assets outside the US have also provided support for the Aussie.
The RBA carried out a short-lived easing cycle between February and August last year, lowering its benchmark rate by a cumulative 75 basis points to 3.6%.
But it reversed course in February as inflationary pressures began to intensify again.
This month, the central bank lifted its core inflation forecasts by half a percentage point and projected that price growth would stay above its target throughout the year, even after factoring in two additional rate increases in its latest outlook.
Last week, RBA governor Michele Bullock said inflation “with a three in front of it” is unacceptable, adding that the rate-setting board is prepared to raise interest rates again if price pressures remain persistent.
Although Australia has faced challenges in returning inflation to target, unemployment has stayed historically low. Bullock noted that the RBA estimates full employment, or the NAIRU, at around 4.6%.