Australia job gains may strengthen case for RBA rate hike

Australia added 65,200 jobs in December and the unemployment rate fell to 4.1%, beating forecasts. Markets increased the chance of an RBA rate rise in February after the report.

Australian unemployment unexpectedly fell in December and employment rose by 65,200. The outcome beat economists' forecasts and lowered the jobless rate to 4.1% from 4.3%. Traders raised bets that the Reserve Bank of Australia could move to raise interest rates as early as February. This development follows a brief easing cycle last year when the RBA cut the key rate by a total of 75 basis points to 3.6%. Key details: - The jobless rate dropped to 4.1% from 4.3% and employment advanced by 65,200, led by full-time roles. - Money markets are pricing almost a 60% chance of a rate hike in February, up from under one-third before the jobs print. - Yields on three-year government bonds rose to their highest level since November 2023 and the Australian dollar reached its strongest in more than a year. - At the December meeting, Governor Michele Bullock said further easing was unlikely and the next move could be a hike, as reported. - RBA Deputy Governor Andrew Hauser described inflation as "too high" and said Australians have probably seen the last cut of the easing cycle, as reported. Summary: The stronger-than-expected employment reading has pushed market expectations toward earlier tightening and influenced bond yields and the currency. Policymakers face another key input next week with the fourth-quarter inflation reading ahead of the RBA's Feb. 2-3 policy meeting. Markets are also reported to be fully pricing a rise for May and a high likelihood of further moves later in the year.