SYDNEY (Reuters) - Australian employment fell unexpectedly in January to end two months of strong gains while the jobless rate spiked to decade highs, a disappointing report that will only add to pressure for another cut in interest rates.
The local dollar slid over half a U.S. cent after the Australian Bureau of Statistics reported employment fell 12,200 in January, when analysts had looked for a rise of 5,000.
The jobless rate jumped to 6.4 per cent, from 6.1 per cent, an unusually large shift that took it to levels not seen since August 2002. Unemployment had been stuck in a range of 6.1 to 6.3 percent since June last year.
"The employment numbers were a little weaker than consensus but the shocking part was the strong lift in the unemployment rate," said Diana Mousina, an economist at Commonwealth Bank. "We think it's a clear sign that the RBA will change the cash rate to 2 per cent in March."
The Reserve Bank of Australia (RBA) cited softness in the labour market as one reason why it cut interest rates to a record low of 2.25 per cent last week.
The Australian dollar duly fell to US$0.7657, from US$0.7722 just before the data hit dealing screens. Interbank futures rallied as investors narrowed the odds on another rate cut at the next policy meeting on March 3.
The market now implies a 60 per cent probability of a move in March, and over 90 percent for April. It even moved to price in a sizeable chance rates would hit 1.75 per cent late this year.
With the economy growing at a sub-par pace, the jobless rate was "likely to rise a bit further and peak a bit later than earlier expected," RBA Governor Glenn Stevens said when announcing last week's cut.
That in turn meant wages growth would stay sluggish - it is currently at the lowest in over a decade - and help restrain inflation in the service sectors of the economy.
Stevens is due to appear before lawmakers on Friday and is sure to be questioned on the rationale for the rate cut, and the likelihood of further moves.
Some indicators of labour demand have been slowly improving.
Figures from ANZ out this week showed job advertisements in newspapers and on the Internet rose for the eight straight month in January to reach their highest in at least two years.
Yet surveys of business show a reluctance to take on new hires amid uncertainty about consumer demand.
Political uncertainty is also playing a part as the conservative Prime Minister Tony Abbott only narrowly avoided a party vote on his leadership last week, leaving the government's policy platform in disarray.