Australian employment growth blew past all expectations in February while the jobless rate hit fresh 33-year lows, reviving speculation that the drum-tight labor market might yet spark another rise in interest rates.
The Australian dollar jumped toward 94 U.S. cents while bond futures slid as investors reconsidered thoughts that last week's hike from the Reserve Bank of Australia (RBA) was the last in the cycle and an easing might even be on the horizon.
"Our base case still is we'll get another hike in May," said Stephen Halmarick, co-head of market economics at Citi. "This economy still seems to have a fairly strong head of steam, to put it mildly."
Thursday's report from the government showed 36,700 net new jobs were created in February, more than twice the forecast of a 15,000 gain. That brought the increase over the year to February to near 300,000, an impressive achievement for a country with a labor force of just 11.1 million.
The jobless rate hit 4.0 percent for the first time since August 1974, down from 4.1 percent in January and confounding analysts' expectations of a rise to 4.2 percent.
"These were powerful numbers and given extra punch by the full employment jump," said Matthew Johnson, a senior economist at broker ICAP. Full-time employment climbed 47,700, and these tend to pay more and are more secure.
He noted employment growth was also broadly based across the country and not just the booming mining states of Western Australia and Queensland.
The central bank has long been concerned that a lack of labor would eventually bid up wages and so add to inflation, which was already running at a 16-year high last quarter.
A survey out on Thursday showed inflation expectations were steadily creeping higher with consumers seeing prices rising 4.6 percent in the coming year, well above the RBA's target band of 2 percent to 3 percent.
"This jobs strength hardly makes it easier for the RBA to stand aside -- they want to see unemployment rising toward 5 percent not falling to 4," said Johnson. "It's a reminder to the market RBA is not necessarily done on hiking."
Investors had priced out almost any chance of a further rise in rates given recent signs of weakness in consumer and business confidence and an inexorable tightening in financial conditions amid the global credit crunch.
The central bank last week lifted its cash rate to a 12-year peak of 7.25 percent, but also noted some tentative signs of a slowdown in the booming economy.
Some economists argued that employment was a lagging indicator and often kept rising even after the rest of the economy was slowing.
"These figures only tell us that the economy was very strong in late 2007," said Rory Robertson, interest rate strategist at Macquarie. "The RBA should put more weight on other leading indicators that point to a slowdown."
A survey of consumers out on Wednesday showed confidence dived to a near 15-year low this month, with many shelving plans for big purchases and paying off debt instead.
Robertson noted that mortgage rates had risen by 125 basis points in just the past seven months, the biggest shock to the household sector in a decade and a half.
"The RBA should sit back and watch the global credit tightening slow the world economy and trust that that will eventually cool the labor market here," argued Robertson.