Australia’s labour market delivered a stronger-than-expected result in June, with employment surging by around 76,000 and reinforcing expectations that the Reserve Bank of Australia (RBA) may need to raise interest rates again this year.
The unemployment rate held steady at 4.4%, in line with forecasts, but the participation rate unexpectedly climbed 0.3 percentage points to an 11-month high of 67.0%, signalling continued strength in the jobs market.
The resilient data prompted the ASX 200 to retreat from early gains as investors increased bets on further monetary policy tightening.
Employment growth smashes forecasts
Employment growth significantly exceeded economists’ expectations for a rise of just 15,000.
The increase was led by a 47,000 rise in part-time employment, while full-time employment also strengthened, rising by 29,300 during the month.
ABS head of labour statistics Sean Crick said: “In June, we recorded a 76,000 person rise in employment, driven by a 47,000 person rise in part-time employment.
“Part of the growth in employment this month came from those who were waiting to start a job in May. This represents a stronger June movement than has been observed in recent years.”
Crick added: “We also continued to see higher numbers of people remaining employed this June, following elevated levels in the recent few months.”
However, the underemployment rate increased by 0.2 percentage points to 6.5%.
RBA rate-hike odds rise
The figures strengthened the view that the labour market remains too tight to provide the RBA with sufficient confidence that inflationary pressures are easing.
VanEck senior portfolio manager Cameron McCormack said: “We believe there is at least one more rate hike coming this year, and a considerable chance that we will see two hikes. Australia’s labour market is determined not to give the RBA the breathing room it needs. Unemployment holding at 4.4% for a second consecutive month confirms the jobs market remains tight and firms the prospect of one more rate hike this year. With the economy close to full employment, the RBA has greater freedom to focus squarely on inflation without a cooling in the labour market.”
Interest rate markets increased the implied probability of an August rate hike from about 25% before the announcement to roughly 33%.
The chance of at least one increase by the end of 2026 rose from around 80% to about 95%, ahead of the June-quarter inflation data and the RBA’s August 11 board meeting.
Wage and oil pressures add to inflation risk
McCormack said the 4.75% increase in minimum award wages introduced this month represented an additional inflation risk, particularly for labour-intensive service businesses.
“The 4.75% increase in minimum award wages, which took effect this month, introduces another source of upside inflation risk. Businesses in labour-intensive service industries are likely to face the greatest pressure to pass these higher costs on to consumers, and we are already seeing anecdotal evidence of this across areas such as restaurants and hospitality. The sharp rise in oil prices adds another layer of inflationary pressure through higher transport and supply-chain costs. If these pressures begin feeding more broadly into goods and headline inflation, the case for another rate hike could be brought forward.”
Crude oil prices have risen about 26% this month, adding to concerns that transport, energy and supply-chain costs could feed into broader inflation.
ASX retreats as Australian dollar rises
The ASX 200 was up about 87 points, or 0.99%, at 8,910.5 before the jobs data, reaching a five-week high.
It subsequently gave back around 30 points to trade near 8,880 as investors reassessed the outlook for interest rates.
The Australian dollar rose from around US$0.6995 before the release to about US$0.7020, with the stronger jobs result supporting expectations of tighter monetary policy.
McCormack said: “Firmer expectations of another rate hike could interrupt the relief rally seen across rate-sensitive and beaten-down areas of the market, including consumer discretionary and healthcare. In this environment, investors may increasingly favour companies with strong pricing power, recurring revenues and exposure to essential services. Companies we think are well positioned include Telstra, Aurizon, APA Group (ASX:APA), Transurban and Coles.”