(July 23): Australian employment surged in June, extending the previous month’s gains, underscoring the ongoing strength in the nation’s labour market and stoking bets on another interest-rate increase.

The currency and bond yields climbed after the economy added 76,300 jobs, more than five times estimates, after an upwardly revised 44,000 gain in May, government data showed on Thursday. The jobless rate held at 4.4%, as forecast, reflecting a rise in the participation rate. 

“Jeez that was strong,” said RBC Capital Markets Economist Mary Jo Vergara. “The rise in the cost of living is clearly pulling people from the sidelines. And for those already in the game, more are crying out for more work.” 

The Reserve Bank of Australia (RBA) last month held its key rate at 4.35% after increasing borrowing costs at its first three meetings of the year to tackle resurgent inflation pressures. The central bank only sees inflation returning to the midpoint of its 2-3% target in mid-2028, and a tight labour market is unlikely to help those efforts.

Governor Michele Bullock said at her June press conference that the RBA is trying to slow the economy to help pull down inflation. The recent hiring results suggest activity may be stronger than the bank had anticipated.

The Australian dollar rose as much as 0.3% and the yield on policy-sensitive three-year government notes climbed as much as five basis points as traders boosted bets on another rate hike. While a quarter-percentage-point increase is fully priced by December, money markets assigned a roughly 50% chance it will happen at the September meeting.

The data come at a time of renewed fighting in the Middle East and the potential for fuel prices to rise sharply again in response, putting more pressure on the economy.

“The jobs report was marginally stronger than we expected,” AMP economist My Bui said. “We think they will hike in August with inflation too far from target band” and amid upside risks like a second-round fuel impact.

In addition to renewed disruptions to shipping in the Strait of Hormuz, attacks have spread to the Red Sea, which had emerged as a vital workaround for crude exports, particularly from Saudi Arabia. Overnight, the Houthis, a militant group in Yemen, said they had targeted two oil tankers in the Red Sea.

In early July, RBA assistant governor Sarah Hunter warned more supply shocks were likely in the period ahead as global instability increases. This reinforced the need to aim for low and stable inflation, she said. 

Australian policymakers will be closely watching quarterly inflation next week, ahead of the RBA’s next policy meeting on Aug 10-11.

“The still-tight labour market gives the RBA some headroom to move if inflation lingers longer than expected,” said Harry McAuley, an economist for Oxford Economics Australia. “That said, we maintain our view that rates will stay on hold for the foreseeable future, with dashed consumer and business confidence being a handbrake on spending.”

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