The RBA is expecting this: Strong employment NOT a rate hike trigger

The AUD rallied to a high of $US0.9237 and the OIS market finally priced in some chance of a future hike today, as the market expressed approval of yet another spectacularly strong Australian employment scorecard.

Employment increased by 30.9K (the market was expecting 25k), full-time employment was +53.1k and the unemployment rate fell to 5.1%. Temporary hiring to staff polling stations on Federal election day did not seem to influence the numbers.

Further, the major population States NSW and Victoria accounted for 49k of the 53k in full-time hiring, indicating that this is not directly related to resources sector expansion. The multiplier effects of that boom, the record high terms of trade and a genuine self-sustaining rise in household demand are conspiring to tighten capacity in the labour market.

RBA already knows that inflation risks are to the upside

Today's report raises the risks towards higher inflation. Employment growth of 3.2%/yr is strong, but as set out in the August Statement on Monetary Policy, the RBA has already assumed, "above average growth in the working-age population and modest increase in the participation rate", to result in the labour market tightening "gradually over the forecast period".

So while we can debate whether labour market capacity is tightening in line or more rapidly than the RBA has been expecting, it is clear that the labour market is behaving roughly in line with the RBA's thinking.