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Jobs data smashed expectations and raise the odds of a February RBA rate hike.
The Australian economy is close to running hot and in need of higher interest rates.
This is the message from the country's labour market where 65.2k jobs were added in December according to the ABS, smashing expectations for a reading of 27K. The unemployment rate unexpectedly fell to 4.1%.
The Australian dollar jumped in response to the data, a clear sign that markets see an interest rate rise at the central bank being discussed in upcoming policy meetings.
"Heightened US policy uncertainty under the Trump administration relating to foreign policy, trade policy and interference with Fed’s independence has contributed to a weaker US dollar over the past year," says Lee Hardman, Senior FX Analyst at MUFG Bank Ltd. "The loss of confidence in US policymaking is likely to remain a headwind for the US dollar as we have seen at the start of this year."
Australia's two-year bond yield - which is closely tied to expectations for the central bank's base rate - has jumped to its highest level since November 2024 to reach 4.155%.
"The decline in the unemployment rate does make a February rate hike more likely at the margin," says Aaron Luk, an economist at ANZ.
That lift in bond yields pulls the Aussie dollar up:
The pound to Australian dollar exchange rate (GBP/AUD) is lower by two-thirds of a per cent on the day at 1.9717. The Australian Dollar-U.S. Dollar pairing surges by a similar margin to 0.6806.
Above: Australia's two-year bond yield jumps as markets bet on interest rate hikes at the central bank.
The implications of the surge in job numbers are stark: strong jobs growth is supportive of wages and bolsters demand for goods and services, which is inflationary.
Australia's CPI inflation rate is already well above the 2.0% target at 3.4%.
Markets bet the RBA will have to raise rates to cool the heating economy and limit inflation's advance.
"We continue to expect the RBA to remain on hold at 3.6% but stress that it is a close call and note that a hike in February remains a material risk," says Andrew Boak, an economist at Goldman Sachs.
The Australian dollar is 2026's best performing currency, and today's data only underpin the case for outperformance.