By Stella Qiu and Wayne Cole
Australian employment data for July exceeded expectations, with net employment rising 58,200 from the previous month. Despite the strong report, the jobless rate increased to 4.2%, the highest in 2-1/2 years, as worker participation hit a record high.
This data supports the Reserve Bank of Australia's view that interest rate cuts are still a few months away. The market has reduced the likelihood of a rate cut in November to 45% from 55% prior to the release.
The local dollar saw a modest increase of 0.2% to $0.6610, while three-year bond futures remained flat at 96.51.
Full-time employment experienced a significant surge of 60,500, marking the third consecutive month of strong gains. Despite the rise in the jobless rate, which reached 4.2%, the participation rate hit an all-time high of 67.1%.
The Reserve Bank of Australia has maintained its policy since November, keeping the cash rate at 4.35%, which is significantly higher than the 0.1% rate during the pandemic. The central bank believes this rate is restrictive enough to achieve its inflation target of 2-3% while supporting employment growth.
Analysts note that a sharp deterioration in the labor market, characterized by declining employment and rapidly rising jobless rates, would be necessary for the RBA to consider a rate cut by Christmas.
Despite the positive employment data, job vacancies are decreasing from elevated levels, and wage growth has slowed to a one-year low. This suggests that the RBA may delay another rate hike as inflation moderates and unemployment rises.
Overall, the Australian labor market remains tight, with strong employment growth and high participation rates. The RBA's cautious approach to monetary policy reflects its commitment to balancing inflation targets with employment gains.
Analysis:
The latest Australian employment data for July showed a strong increase in net employment, surpassing market expectations. While the jobless rate rose to a 2-1/2 year high, the record-high worker participation rate indicates solid labor demand. This data suggests that the Reserve Bank of Australia is likely to maintain its current cash rate of 4.35% in the near term to support employment gains and achieve its inflation target. Despite concerns about slowing wage growth and declining job vacancies, the overall outlook for the Australian labor market remains positive.