Australian employment surged in August while unemployment held at 33-year lows, suggesting the domestic economy had built a full head of steam even as turmoil in credit markets threatened the outlook for global growth.
The Australian dollar firmed after the government reported a hefty 31,900 increase in employment for August, the biggest rise in three months and well above market forecasts of 18,750.
Almost all the gains were in full-time employment, which climbed 29,100, jobs which typically pay more and have better benefits than part-time employment.
Australia's jobless rate held steady at 4.3% while the participation rate climbed to a record high of 65.1% as more people joined the labour force.
"It is a huge increase, that's twice the consensus increase," said John Edwards, chief economist at HSBC. "It means that through August the economy was still clearly vigorous."
Such strength would normally have stoked speculation about an imminent rise in interest rates, but ongoing strains in credit markets have convinced many there is little chance of a hike in the very near term.
Indeed, earlier on Thursday the Reserve Bank of Australia (RBA) announced it would accept more types of debt for repurchase in its money market operations, an attempt to ease upward pressure on bank rates from the global credit squeeze.
"Clearly what is dominating the RBA's thinking at the moment is liquidity problems in the market and the global picture, and that will keep them sidelined," said Su-Lin Ong, a senior economist at RBC Capital Markets.
"Their main concern right now is the effective functioning in financial markets and that was clear in their measures announced this morning. It's not the time to be tinkering with rates."
Higher Borrowing Costs
The central bank held its monthly policy meeting earlier in the week and decided to leave rates uchanged, just a month after hiking them to a decade-high of 6.5% in an attempt to restrain inflation.
Treasurer Peter Costello warmly welcomed the jobs numbers, just the latest in a string of upbeat indicators which included surprisingly rapid economic growth of 4.3% in the year to end-June and a revival in retail sales.
The ruling Liberal National government is expected to call an election before year-end and is trailing badly in the polls.
Yet, Costello still had to acknowledge that strains in credit markets had done some damage to confidence in Australia.
In particular, a near seizure of lending in the market between banks had led to a sharp rise in borrowing costs for many institutions.
Three-month bank bill rates had surged to a decade high around 7.05% early on Thursday, before dipping back to 6.93% after the RBA's announcement on lending.
"The rise in funding costs for banks could well see corporate borrowing costs rise and that means the market is, in part, doing the RBA's job for it," said Kieran Davies, chief economist at ABN AMRO.
"Today's employment data will obviously reinforce the RBA's tightening bias, but all this credit stress will have to subside before it would consider another hike," he added.
The earliest window for a move is seen as November, following inflation figures for the third quarter due out in late October.