Australia Unemployment Falls to 4.1%, Boosting RBA Rate Hike Odds in February - ASX

Australia’s unemployment rate dropped to 4.1% in December from 4.3%, below forecasts, as the economy added 65,200 jobs—more than double the expected gain—fueling speculation of a Reserve Bank of Australia (RBA) rate hike as early as February 2026. The stronger-than-expected labor market data pushed yields on three-year government bonds to their highest since November 2023 and lifted the Australian dollar to a one-year high. Money markets now assign a nearly 60% probability of a February hike, up from under 33% before the release. The RBA’s next meeting is scheduled for February 2–3. Commonwealth Bank strategist Carol Kong noted the jobs report clears one hurdle for a rate increase, with focus now shifting to the fourth-quarter inflation data due next week. Consumer prices may have risen 0.9% in the quarter, which she said could compel the RBA to act. The central bank cut rates by 75 basis points between February and August 2025, bringing the cash rate to 3.6%. But at its December meeting, Governor Michele Bullock signaled further cuts were unlikely, opening the door to a tightening pivot. Markets fully price in a May hike and see over 90% odds of two hikes in 2026.