The Australian dollar climbed above $0.70 to a five-week high after a stronger-than-expected labor market report reinforced expectations of another interest rate hike. Net employment jumped by 76,300 in June, the largest increase since April last year and far exceeding forecasts for a 15,300 gain. The unemployment rate held steady at 4.4% as expected, while the participation rate rose to 67%, its highest level in a year.
The robust figures underscored persistent labor market tightness and pushed market-implied odds of another rate hike by year-end to 90%, up from 78%. Together with higher oil prices driven by renewed conflict in the Middle East, the strong jobs data have heightened uncertainty over the inflation outlook and increased pressure on the Reserve Bank of Australia to maintain a restrictive policy stance.
Investors are now focused on next week’s second-quarter inflation release, with core inflation expected to quicken to 3.7% year-on-year from 3.5%, remaining well above the central bank’s 2%–3% target range.