Australia\u2019s employment rate has dropped to 4.1 per cent. Picture: NewsWire \/ John Appleyard <\/p>\n
Australia\u2019s dollar surged against the US after a surprising fall in the unemployment rate that could lead to interest rate hikes within the next three months.<\/p>\n
Australia\u2019s unemployment rate has fallen to 4.1 per cent in December from 4.3 per cent the month before, as 65,000 new workers found a job in the final month of last year.<\/p>\n
This was largely driven by a number of younger Australians entering the workforce on a full-tme basis.<\/p>\n
Following the jobs data, the Aussie dollar jumped 0.62 per cent and was buying 67.96 US cents.<\/p>\n
IG market analyst Tony Sycamore says the Aussie dollar could continue to run higher against the United States given the differing rate paths between the two countries.<\/p>\n
The Australian dollar immediately jumped following the surprising jump in employment. Picture: Yahoo Finance <\/p>\n
Money markets have counted on 48 basis points of interest rate rises by the end of 2026 in Australia while in the US they are forecasting two interest rate cuts.<\/p>\n
In Australia the bond market has fully priced in a 25 basis point increase in rates by May this year.<\/p>\n
\u201cAgainst that backdrop of our central bank hiking rates and the US Federal Reserve cutting them, it can really only mean one thing for the Aussie dollar,\u201d he told NewsWire.<\/p>\n
\u201cIt is a good story for the Aussie dollar. You can\u2019t find any good reason to sell the Aussie only reasons to buy it and that is usually a pretty good indication there is no real reason for it to fall away.\u201d<\/p>\n
Mr Sycamore also pointed to superannuation funds hedging the Australian dollar and rising commodity prices as a major boost for the national currency.<\/p>\n
Oxford Economics Australia head of economic research and global trade Harry Murphy Cruise said the odds of a rate hike are rising.<\/p>\n
\u201cThe labour market\u2019s resilience has been a defining feature of the economy for the better part of four years,\u201d he said.<\/p>\n
\u201cDespite periods of soaring inflation and interest rates to match, unemployment has continually outperformed expectations.\u201d<\/p>\n
Mr Murphy Cruise said the markets had been forecasting unemployment to rise to 4.6 per cent by mid-year, but increasingly the jobs market was \u201cdigging in its heels\u201d.<\/p>\n
Australia\u2019s employment rate has dropped to 4.1 per cent. Picture: NewsWire \/ John Appleyard <\/p>\n
BDO chief economist Anders Magnusson agreed, saying the surprising market strength cleared the way for a February rate hike.<\/p>\n
\u201cThis result suggests the labour market remains tight enough that the RBA would not be jeopardising full employment if it were to raise rates, should the inflation data warrant it,\u201d Mr Magnusson said.<\/p>\n
\u201cThat said, I expect the RBA to hold the cash rate and continue to wait and watch for another month, rather than switch to a tightening cycle in February.\u201d<\/p>\n
ABS head of labour statistics Sean Crick pointed to a fall in youth unemployment as the major driving force behind Thursday\u2019s shock figure.<\/p>\n
\u201cFewer young people were underemployed in December, with the 15-19 year old underemployment rate falling by 2.1 percentage points to 17.4 per cent,\u2019 Mr Crick said.<\/p>\n
Overall, the growth in employment was driven by male employment, which rose by 49,000 people, while female employment recorded a smaller increase of 17,000 people.<\/p>\n
Hours worked also surged and surpassed 2 billion for the first time.<\/p>\n
In November the unemployment rate was 4.3 per cent.<\/p>\n
Despite the surge in jobs figures at the end of the year, Indeed economist Callam Pickering highlights it was a sluggish year overall for the jobs market.<\/p>\n
\u201cEmployment increased by just 165,000 people over the course of 2025. That compares unfavourably with gains of 392,000 people in 2024,\u201d he said.<\/p>\n
\u201cIn fact, ignoring the pandemic, this was the weakest calendar year for employment growth since 2016.\u201d<\/p>\n
Mr Pickering suggests Thursday\u2019s figures could give the RBA something to think about, but suspects they will be sceptical about the large and unexpected drop in unemployment.<\/p>\n
\u201cWhile there were some big moves in December, we expect the labour market to take a clear backseat to inflation when the RBA meets in February,\u201d he said.<\/p>\n
\u201cWhether the RBA decides to hike or not, will largely be determined by the strength in the December inflation report, particularly the trimmed mean measure.\u201d<\/p>\n
Prior to the Australian Bureau of Statistics\u2019 announcement on Thursday morning, the market had been expecting jobs growth of 35,000 workers and the unemployment rate to remain steady at 4.3 per cent.<\/p>\n
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