Australia: Labour market remains tight – UOB

Economist at UOB Group Lee Sue Ann reviews the publication of the latest labour market report in Australia.

Key Takeaways

“Australia’s job market continues to tighten, with the latest figures showing the unemployment rate falling to 3.5% in Jun, the lowest level since Aug 1974. Seasonally adjusted employment growth was strong at 88,400 over the month, well above expectations for 30,000, and May’s reading of 60,600, making this the eighth consecutive monthly rise.”

“Overall, the labour market strength has given the green light for the Reserve Bank of Australia (RBA) to continue pushing interest rates higher, after delivering a 50bps hike earlier this month on 5 Jul. Indeed, in light of the RBA’s persistent reference to ensure that inflation in Australia returns to target over time; we believe the RBA is open to a third 50bps rise in Aug.”

“While financial markets have priced in aggressive tightening, with the expectation for OCR rising above 3.5% by 2Q23. we think the Australian economy does not require such aggressive tightening, and our view is also based on several uncertainties flagged by the RBA. The next RBA meeting is on 2 Aug, and 2Q22 CPI data, to be published on 27 Jul, will be a crucial update that comes a little less than a week prior to that meeting.”